MEDIA ROOTS – United Front Against Austerity (UFAA) is a grassroots coalition with the bold initiative and hopefully the tenacity to inspire a generation increasingly strapped with debt and a diminishing political voice. Lead by such notables as author Webster G. Tarpley, an initial conference is scheduled tomorrow in New York City and will feature input from other activists such as Cindy Sheehan.
The event is sure to invoke a desperately needed review from where previous recent social movements have left off. The assembly intends to build on the advances that have already occurred in Wisconsin with insightful decisions, specific demands, and mobilized action. It will be streamed live and mechanisms are in place for online participants to also share their voice.
Dr. Tarpley, a lifelong historical philosopher, drafted an opinion piece earlier this week on how the establishment political parties (Republicans and Democrats) are succeeding in demeaning the vast majority of the American electorate – the middle and lower classes.
“There is today a consensus between Wall Street and Washington that draconian austerity must be imposed in the United States. This will be the case no matter whether Obama or Romney wins the upcoming election,” predicts the author of George Bush: The Unauthorized Biography, a 1992 publication about the senior past president. Dr. Tarpley continues, “the financiers of lower Manhattan are thus ignoring the evidence offered by these other countries showing that austerity policies reduce employment, lower production, cause severe mass privation, introduce powerful elements of chaos into society, and actually increase the government budget deficits in future years — meaning that austerity fails even in its own terms.”
Because it is already ensured that virtually nothing will change upon the outcome of this year’s presidential election, this coalition is wasting no time to act. After all, effective social movements are not established overnight and time may actually be even more limited than the dwindling value of today’s dollar.
For more information on the UFAA conference, be sure to check out againstausterity.org and tune in to the live feed starting Saturday, October 27 at noon Eastern.
Oskar Mosco for Media Roots.
Image provided by United Front Against Austerity.
PRESS TV – Observers have noted that Obama and Biden, in their three debates held so far with their Republican rivals, have never mentioned the traditional Democratic Party platform planks of raising the minimum wage; preserving the funding of the food stamp program (the Supplemental Nutrition Assistance Program of the US Department Of Agriculture) which keeps some 50 million Americans alive; maintaining and extending unemployment insurance payments to the jobless; or making it easier for trade unions to organize.
This failure by Obama and Biden to even mention these concerns of lower middle class working people and the working poor does not represent astute politics. On the one hand, it is true that the Democratic Party has almost entirely lost its earlier base of support among white male workers. But the Democratic Party still has a sizable constituency of working women, often single mothers, who have no college education. These are the so-called “waitress moms,” for whom the economic issues are very important. But the Democratic Party ignores them, since promises of this type might get in the way of delivering the austerity demanded by Wall Street.
MEDIA ROOTS — Noted economist and syndicated TV show host, Max Keiser has studied, and reported on, the global economy for decades. He looks at financial systems according to the mathematical laws of systems analysis and occasionally discusses the warning signs of impending economic collapse. On last Friday’s episode of The Alex Jones Show, Keiser discussed the looming collapse of global markets. With the Congressional Budget Office having echoed Keiser’s prediction of “fiscal tighenting” yesterday, it appears the former stock-trader is again on the mark.
“I’m saying that there is a 90% chance of collapse by next April, but it could happen at any time between now and April,” Keiser reported on August 17. “You have to look at [the global economy] in terms of the way a systems analyst would look at any complicated system. Every time you add more to the system the complexity doesn’t rise in a linear fashion, it rises exponentially. So every time the Fed puts on more quantitative easing, every time investment banks bail out some other investment bank, every time more derivatives are released into the system, you don’t go from, let’s say, 700 trillion notional value derivatives to 800 trillion in a linear way. You have to think of it in terms of this global quadrillion to two quadrillion derivative soufflé being encumbered with, exponentially, more risk. This is classic systems analysis.”
This nation’s economy has been growing in complexity, exponentially, since 1971 when the U.S. dollar was taken off the gold standard. “The game here is to try to pick where it starts, what is the trigger, and to study it in terms of how the economies rattle and roll, as a result of this complete and utter systemic breakdown,” continued the founding host of The Keiser Report, a biweekly program, that aired its 330th episode yesterday.
Could Japan trigger the global economic collapse?
Keiser looks to the economy of Japan as a “weakest link” and a possible trigger for systemic collapse. He says what turned his eye toward Japan was the recent announcement that the second biggest buyer of U.S. Treasury debt is no longer China. Keiser explains, “America is the biggest buyer of its own debt. But taking the second spot is Japan. China is walking away from the table.”
Keiser continues, “Japan has always been under the treasury of America’s thumb. They will do whatever America says. And now they are the number two biggest buyer [sic] of US Treasury bonds. But that is extremely dangerous because their economy itself is a tinderbox, probably the weakest, most fragile economy in the world—after the Fukushima disaster, after 20 years of the zombie economy and the zombie banks. But now they are supporting America. Japan, the zombie economy, is supporting the American economy, to give you an idea how fragile the system is.”
“There is no avoiding the collapse. There is no remedy for the collapse.”
He then predicts civil unrest and a generational civil war. Therefore, the government is preparing for civil unrest, long anticipated by the John Warner National Defense Authorization Act of 2007, which rewrote federal law to allow deployment of the military, specifically, in cases of “economic collapse.”
After describing our evolving “hard gulag” situation in this country with private prison systems increasing capitalization, expecting 20-50 million more inmates in the near future, Keiser defines a new type of dystopia he calls a “soft gulag,” where citizens give up more freedoms—such as facial recognition—in exchange for deals on consumer goods.
Tom Ball and Oskar Mosco for Media Roots
Photo provided by Flickr user Stacy Herbert
Max Keiser recently appeared on The Alex Jones Show to discuss the imminent financial collapse of global markets. (Also, see his Guns and Butter radio broadcast below.)
August 22, 2012
GUNS AND BUTTER — “You don’t know which snowflake is going to start the avalanche. You know that the system is under such stress that it will only take one more snowflake to start the avalanche, that the system, itself, is under extreme stress right now. It cannot take even one bit more of systemic complication, you know, exponential increase in system complication. So, we’re at that pre-avalanche phase.”
Bonnie Faulkner (c. 1:15): “I’m Bonnie Faulkner. Today on Guns and Butter: Max Keiser. Today’s show: ‘Countdown to Currency Collapse.’
“Max Keiser is a financial analyst, television and radio host, journalist, and entrepreneur. He is host of the biweekly The Keiser Report with Stacy Herbert on RT. His co-host was Stacy Herbert of the weekly radio talk show on Resonance 104.4 FM in London and is host of On the Edgeon Press TV. He produces documentary films covering markets for Al Jazeera’s People & Powerseries and is a frequent guest on Al Jazeera English and France 24. Max Keiser is creator of PirateMyFilm, an alternative media funding mechanism, that supports the creative commons.
“Max Keiser: Welcome.”
Max Keiser (c. 2:13): “Always a pleasure to speak with you, Bonnie.”
Bonnie Faulkner (c. 2:15): “It’s been a year since we last spoke, Max. At that time, you had just returned from Greece. And we spoke about the crisis there. A lot has happened in the past year. Let’s start with fraud. Bring us up to date on the latest in financial fraud. What’s been going on?”
Max Keiser (c. 2:37): “Well, the number of frauds are increasing. And they’re getting bigger.
“At HSBC, they’re implicated in a multi-hundred-billion-dollar money laundering scandal for Mexican drug cartels.
“There’s also Barclays. They’re involved with the multi-hundred-trillion-dollar LIBOR rigging scandal.
“JPMorgan was caught fiddling their books in London on this recent two- and then five-billion-dollar error. So, the list goes on and on.
“Standard Chartered, now fined a few hundred million dollars for money laundering for Iran.
“Just about every single one of the so-called too-big-to-fail banks is involved in a multi-hundred billion dollar scandal of some type. So, the level of fraud is increasing. The numbers are getting bigger. The response from regulators around the world is still a big nothing, a big silence.”
Bonnie Faulkner (c. 3:43): “Now, I never completely understood the LIBOR scandal—banks fixing interbank lending rates. I mean, haven’t they always done this?”
Max Keiser: “Well, it’s a question of trading on the advance information. They fix the rate. But they are telegraphing their machinations to the market ahead of time to trade on that inside information.”
Bonnie Faulkner: “Well, now what about this MF Global and John Corzine with people’s money in their own private accounts just disappearing. Has anything happened with that at all?”
Max Keiser (c. 4:19): “Well, the John Corzine story at MF Global is really introducing a new chapter in all this ‘cos as you point out, money was directly taken out of segregated customer accounts—over a billion dollars.
“Corzine, himself, his defence is that money simply ‘vaporised.’ That’s the word he used. And that has held up. No regulatory agency is questioning his defence the money simply ‘vaporised.’ He has no idea where it went. And, now, the new scuttlebutt is he’s starting a new hedge fund. So, John Corzine is up and running. He’s starting a new hedge fund, back in business. And his crimes, along with Jamie Dimon at JPMorgan, are just being swept under the rug.”
Bonnie Faulkner (c. 5:15): “Yes, I did read that he was going to start a new hedge fund. I mean how can he do that? There’s no law anymore, I guess.”
Max Keiser: “Well, he’s a made man. You know he’s a former governor of New Jersey. He’s former head of Goldman Sachs. He’s part of the inner circle of the global financial mafia. He’s untouchable.”
Bonnie Faulkner: “Right. And what do you think about this Facebook IPO fiasco?”
Max Keiser: “This is a—I think it’s pretty interesting because on Wall Street for years there have been the notorious bucket jobs, as peddled in, usually, penny stocks. And it’s a really kind of an unseemly side of Wall Street, that’s operated, really, since Wall Street’s been around.
“And the pump and dump scam is [where] the insiders buy up a bunch of some company with very dubious prospects. And then they start calling people up to get them to buy into this ‘amazing’ story. And [insiders] sell out their stock at a much higher price to the new investors. And then, once [insiders] stop selling their stock, the market collapses and investors are [left] holding worthless stock.
“So, here, this is the first $104-billion-dollar pump and dump scam. Facebook’s business prospects are dubious. There’s not really much of a model there. You had the likes of [Democrat president] Barack Obama putting his arm around Mark Zuckerburg in the White House promoting this pump and dump scam. The insiders, as the stock crossed in valuation from $30 billion, $40 billion, $50 billion, etcetera, all the way up to $100 billion, all the way up to the IPO, the insiders were dumping, including Zuckerberg.
“So, the insiders, the venture capitalists, they’ve sold out. They’ve made billions of dollars. The people, who ended up buying in to this at $38 dollars a share on the IPO, they are the suckers. They are the victims. They got—the stock has been dumped on to them. And it’s a classic pump and dumpscam. It’s unusual because you have never seen one ever—I don’t think there’s ever been one—a $100-billion-dollar pump and dump scam. That’s certainly novel.
“But the underlying story here is a classic penny stock Wall Street pump and dump scam.”
Bonnie Faulkner (c. 7:42): “I didn’t realise that Zuckerberg had been dumping his stock.”
Max Keiser: “Oh, sure. He’s raised over a billion dollars in cash.”
Bonnie Faulkner: “Well, now, do you think this was intended as a big scam right from the beginning?”
Max Keiser: “Well, by what I’m saying is, it’s one of many tried and true scams, that Wall Street uses to sucker people out of there money. It’s called a pump and dump scam. It’s one of many types of scams. And the people who’re behind it, when they organise it, they begin to begin the story, the narrative to this they do so with full knowledge that they are engaged in a fraudulent activity—the same thing with Groupon, the same thing with Zynga.
“Oh, by the way, all three of those companies are all pump and dump scams: Zynga, Groupon, and Facebook. And, collectively, in the last three months, shareholders have lost over $62 billion dollars. And all three of those companies share Ernst & Young, as their auditor. And that brings up another aspect to this racketeering, that’s going on because there’s several components to the racket. There’s the Wall Street banks. There’s the auditors, that are involved. Then there’s the hedge funds. Then there’s the rating agencies. Then there is mainstream financial media, like CNBC.
“But the auditor’s role is that they sign off on books, that characterise things, such as losses as revenue. So, in the case of Zynga, they were generating losses, but they mark it as revenue. I mean that’s what the auditor does. They are very corrupt and they are part of this mafia racket.”
Bonnie Faulkner (c. 9:32): “Right. So, there’s fraud in all of these accounting firms. I mean I’m reminded of Arthur Andersen. I think they went under, didn’t they?”
Max Keiser: “Well, Enron—Arthur Andersen was Enron’s accountant—they were engaged in massive fraud and hiding tens of billions of dollars’ worth of liabilities. Then, when it was exposed, they went out of business. But the remaining Big Four(or Big Five, whatever they’re down to now), they have not changed their practices at all. They’ve only gotten more egregious in their outrageous accounting misconduct because they’ve been very aggressive in getting Congress to change laws, modify laws, bring in new laws, to strengthen their stranglehold with this mafia approach. So, they’ve gotten much worse.”
Bonnie Faulkner (c. 10:23): “How important or dangerous is this continuing financial fraud? Is it something, that’s always going on? Or do you see this as a real shift, as a break down in the financial system, itself?”
Max Keiser: “The financial system started to break down in the 1970s and it’s just been getting worse. And it’s been accelerating, in terms of its breakdown.
“I just wanted to you give you a good reference here. Francine McKenna, who’s a former, one of the big accountants, writes for Forbes, and she has a great story here about Groupon, Facebook, Zynga. And they share the same accountant—Ernst & Young is the accountant.
“But the system—you asked, how much damage is this doing to the system?—it’s approaching to a point now where the system is now so overloaded with fraud and derivatives, which are desperately trying to cover over this fraud. That we are kind of rapidly approaching a point of a global financial breakdown, that would be far in excess of what we saw in 2008.”
Bonnie Faulkner (c. 11:52): “Right. And what in your opinion is keeping the stock market afloat? I mean they’re—what?—12-, 13,000, still. And, yet, I keep reading that the average investor has lost confidence in it. What’s keeping this all floating?”
Max Keiser (c. 12:11): “Well, 86% of the volume on the New York Stock Exchange are computers trading with other computers. They’re not humans.
“And the computers are programmed, using algorithms, to make massive amounts of trade. They’re funded with off-balance accounts, that are not officially on anyone’s books. And those values are basically you know ephemeral. It’s a hologram generated by computer trading, high-frequency trading, algorithmic trading, just to keep the value of the presumed collateral on these banks at a level, that they can continue their operations. That is unsustainable. And we see it breaking apart. We see these flash crashes, that are occurring, whereKnight Capitalblew up in 45 minutes, lost $440 million dollars in five minutes because an algorithmic trading robot blew up. So—and these are happening with greater frequency, with bigger numbers. So, that’s what we’re heading for.
“We have a systemic collapse. You’ll have a multi-trillion-dollar flash crash affecting the financial markets, that will occur, like the Enron situation, quite rapidly. And the system will be irreparably damaged.”
Bonnie Faulkner: “Now, when we talk about a systemic collapse, particularly, of the financial system. And it’s all tied together now. As you’ve stated, things are much worse now than in 2008. How do you see this happening? Nobody’s got a crystal ball. But at some point, the system’s gonna give away, isn’t it? I mean is the whole thing gonna come crashing down? People have been predicting this for a long time. But somehow it just keeps continuing.”
Max Keiser (c. 14:11): “Well, the people, who have been predicting different scenarios, they’ve been predicting, you know, different versions of this story, and with different outcomes, and different timelines. But it’s important to remember that the basic timeline is still very much in place over the last five to ten years.
“The markets are coming unglued. The income gaps are widening dramatically. The potential for civil unrest, the actual civil unrest, is increasing sharply. The amount of contortionist monetary policies required to cover the gaping holes of the system are becoming more extreme. So, you have programmes, like quantitative easing manoeuvres.
“So, all these things are coming together. And, though, the timing of it—I’ve gone on record as saying that by April of 2013 you’ll have this global collapse. You’ll have at the outset now probably in April of 2013, when they do the taxes. For the U.S., there will be a remarkable shortfall in taxes. And U.S. government paper will be downgraded pretty sharply.
(c. 15:34) “But what it looks like is the currencies, the major currencies of the world—the dollar, the euro, the yen, the Chinese RMB—collapse. Like we saw a currency fall in Argentina; like we saw a currency collapse in Iceland; as we’ve seen in the central Asian collapse of the ‘90s. But there’s a global synchronous currency collapse.
“Now, when I say currencies, I do not include gold and silver. Gold and silver, of course, would be the opposite trade, the opposite of this. This is where the smart money is moving now.
“The central banks are buyinggold. China is very aggressively buyinggold. Smart hedge funds, like John Paulson, increased their gold. Soros is increasing his gold. ‘Cos they know what’s about to happen. They know we’re at the end game now. So, they wanna have the only thing, that’s been good money for the last 5,000 years—gold and silver.”
Bonnie Faulkner: “I’m speaking with financial analyst and broadcast journalist Max Keiser. Today’s show: ‘Countdown to Currency Collapse.’ I’m Bonnie Faulkner. This is Guns and Butter.
“So, when you say you see the system breaking down April 2013, you’re basing that on when U.S. taxes are due, correct?”
Max Keiser (c. 16:58): “I think that’ll be the—if the system is still around by then, I project that that remarkable shortfall come April next year will be, if there needs to be a trigger, yet, to fire to cause this global meltdown—that would be the trigger. And that would be the time frame.”
Bonnie Faulkner: “You know it’s interesting because a lot of people I know who barely have any money at all are getting these letters from the IRS and the Franchise Tax Board after them for these little bits of money. And I’ve just noticed this in the last month. So—I don’t know—are they going after the little guy? It’s kind of nutty.”
Max Keiser (17:46): “Well, this is predictable. And it’s historically predictable. They’re broke. They’re looking for any money they can. They’re broke. The government is completely broke. There’s no economic scenario, that you can imagine or create, that would pay off U.S. government debt. It just mathematically can’t happen under a so-called world scenario.
“There’s only two outcomes. One is a default on the debt. That would be an utter collapse. Or, two, hyperinflation, or a currency collapse, which is what I think is gonna be the outcome.
“I think they will attempt to inflate their way out of this debt, by allowing the dollar and other currencies to collapse in hyperinflationary endgame. And that’s coming.”
Bonnie Faulkner (c. 18:46): “Well, if you see a collapse in fiat currency, how is that gonna look? I mean what would happen?”
Max Keiser: “The price of gas would be $15 dollars a gallon. And groceries would be $2-, $3-, $400 dollars for a bag of groceries.”
Bonnie Faulkner (c. 19:08): “So, when you’re talking about hyperinflation, like something like what occurred in pre-World War Germany.”
Max Keiser: “Right. Exactly.”
Bonnie Faulkner: “What about global debt and U.S. debt, in particular? A lot of economists think that because the U.S. government prints its own money and that the dollar is the world government reserve currency, that the U.S. government can stimulate the economy and create an economic recovery by creating a new New Deal (i.e., putting money into infrastructure, reconstruction, hiring people, etcetera).
“Do you see an FDR-type New Deal scenario as a possible fix?”
Max Keiser (c. 19:49): “At the time of the New Deal, the U.S. was the world’s biggest creditor. Now, the U.S. is the world’s biggest debtor. And they simply don’t have any room for that. You know, right now, the biggest buyer of U.S. debt is the U.S. government. Up until recently, the second biggest buyer was China. Now, it’s Japan. China is dumping their U.S. debt, as are various other global creditors.
“You can’t finance debt with more debt infinitely. It just doesn’t work that way. It’s like inventing an anti-gravity machine or something. It’s not gonna happen. So, you can’t make the comparison really. If you want to make the comparison, say, to another period of time, the crash of the period of the ‘20s and of the Depression, if you get go back and draw the right conclusions from that period of time.
“You know the Depression was caused primarily by the run up in speculation on Wall Street in the ‘20s. And you had the crash of ’29. The recovery was, really, the number one contributor to its recovery were the reforms, that were put in place by FDR, and also the Pecora Commission, that was in place, that went ahead and prosecuted bankers and put many, many bankers in jail, and brought in things like Glass-Steagall, and FDIC, etcetera.
“And, now, the crisis today is we have the same problem. Wall Street speculation creates this enormous bubble in derivatives, that crashed in 2007. And the solution is similar. You need to reform the banks, if you want to recover from the resultant Depression, which is the result of the banking speculation. But we’re nowhere near that. There’s no Pecora Commission. There’s no bankers going to jail. There’s nothing.
“So, there’s no hope of any kind of recovery until you learn the lessons from the crash of the Depression of the ‘20s and ‘30s.
“A stimulus programme based on issuing more fiat currency, that simply gives bankers more leeway to commit more fraud is, you know, throwing gasoline onto the fire. You don’t wanna give stimulus, print money, and to have it circulate through Wall Street, so that they can leverage that up another ten or fifteen times, create another five or ten trillion dollars of unsustainable debt. And then make simply the result a crash that much worse.
“But I don’t think we’re gonna even have the opportunity to try that experiment because I believe we’re in the last 35 weeks of the timeline, before we get the global fiat currency obliteration. So, there won’t be any time, really. It’ll be a moot point in six months.”
Bonnie Faulkner (c. 22:51): “So, you’re saying that you think that the systemic fraud, this time around—as opposed to the Depression era—is much, much worse and, actually, the banks control the government, rather than vice versa, right?”
Max Keiser (c. 23:06): “Well, I’m not necessarily saying it’s worse. I’m saying that there’s been no response. In the ‘30s there was a response. Banksters were put into jail.”
Bonnie Faulkner: “Right.”
Max Keiser: “Here, there’s been no response at all.”
Bonnie Faulkner: “Exactly.”
Max Keiser: “So, until there’s been a response, then expect more of the same.”
Bonnie Faulkner: “Now, how do you see the next nine months going? It looks pretty bleak. What do you think is gonna trigger this whole thing—the inflation of the currency?”
Max Keiser: “Well, that’s an interesting point. Then you get more into a grey, fuzzy area: What, ultimately, will be the trigger?
“I think, at the worst, at the outset of this timeline, I’m saying tax receipts April 2013 is gonna be the ultimate trigger, if there is no trigger between now and then.
“But, before that, you could get something like Japan, [which] is extremely fragile. They’ve got GDP: over 200%. They’ve got, now, demographically, a horrible situation, where, instead of being allowed to finance their debt internally, they’ve got a whole generation, that’s pulling money out of the retirement systems. So, that’s essentially collapsing. And they’re a big part of this global, globalised, financialised, transactionalised world.
“So, that could be the trigger, there. And, right at the moment, that’s my—I’m kind of looking at that pretty closely. I think that what’s happening in Japan could be the trigger to set this up.
“But it could come from a number of different sources.
“In South Africa, you know, they had these huge labour riots and the government responded by murdering many, many people. South Africa, of course, is very key on the global commodity business—gold, platinum business. If that spreads to gold–mining in South Africa, some nationalisationwave occurs across the commodity sector, that could be the possibility. There are other possibilities. Any one of those could be the trigger.
“You don’t know which snowflake is going to start the avalanche. But you know that the system is under such stress that it will only take one more snowflake to start the avalanche. But the system, itself, is under extreme stress right now. It cannot take, you know, even one bit more or systemic complication, exponential increase in system complication. And, so, we’re at that pre-avalanche phase.”
Bonnie Faulkner (c. 25:41): “And, now, you mention Japan, as a possible triggerbecause why? Japan is the second-largest buyer of U.S. debt?”
Max Keiser: “Well, the yen is a currency, that everyone has flocked into, as a safe haven trade. And, so, there’s a tremendous amount of money locked up in Japan right now with the idea that the economy is relatively stable with other G20 economies.
“But it looks as though that is about to reverse itself and the country will not be seen as a safe haven anymore, which would precipitate outflows, many, many, many trillions out-flowing. And then that would be the beginning of this avalanche.”
Bonnie Faulkner (c. 26:29): “Well, now, let’s say that the system, which is teetering, really does crash in some fashion. What else do you think that that would look like?
“I’ve done shows on the militarisation of the local police departments. Obviously, the U.S. has the most advanced technological weaponry. We’ve got a huge prison-complex industry going on here.
“Do you see a martial law type scenario? What do you think might it look like?”
Max Keiser (c. 27:05): “Well “Well, first of all, in terms of one or the other attributes, aside from hyperinflation, you’d have bank, so-called, holidays. So, banks would shut down. So, this would make it very difficult to fund operations. You know in 2008 we had that situation where the credit lines amongst the top banks in the world froze. And they couldn’t get money from each other. They couldn’t lend to each other. There was a complete freezing up of the global system.
“So, imagine this more comprehensively with ATMs running out of money.
“Already, in Europe we see instances—for example, here in France—the limits, that you can take out of your bank, using an ATM card, have been reduced. So, that’s kind of a soft run on the bank. So, the banks can simply say you can only take out a hundred dollars a day. Then, a week later, they’ll say you can only take out $50 dollars during the course of the day.
“In Britain, recently, you had two banks go through multi-day systemic failures where people couldn’t get their money. They couldn’t move their money. They couldn’t pay their bills.
“So, the system, again, is highly stressed. And that would be what it looks like. You can’t get money in the machine. You’re completely without money.
“You know, we’ve seen this in Argentina. And we’ve seen this before.
“But, as far as what it looks like on the social—what The Economist magazine would call—the social cohesion. You know they ran a story two or three years ago they called The Social Cohesion Index, where they tried to predict which countries would be the least fun places to be during such an event. And my general rule of thumb is you don’t wanna be anywhere with a lot of tanks, soldiers, guns, and prisons. Try to stay away from those areas.
“So, certainly, in the U.S., you have a lot of soldiers, guns, and prisons now. And that’s not a good place to be. I’m not there for this reason. So, that would be a good rule of thumb. If you see a lot of drones, cops, guns, tanks, soldiers. Try to stay away from those areas.”
Bonnie Faulkner (c. 29:29): “Yeah, no kidding.”
“I’m speaking with financial analyst and broadcast journalist Max Keiser. Today’s show: ‘Countdown to Currency Collapse.’ I’m Bonnie Faulkner. This is Guns and Butter.”
“Well, I understand that you’re planning a move to Great Britain. Now, isn’t Great Britain pretty much right up their with the police state scenarios?”
Max Keiser: “Well, as a media figure it’ll be interesting to see how that plays out. Of course, you’ve got the Julian Assange story playing out where Julian Assange, a journalist, has now taken on the biggest governments in the world. And, so far, he’s doing quite well.
“So, Britain is becoming a really interesting place, and not only for journalists’ rights, but also ground zero for global banking fraud. So, all the biggest bank frauds of the last ten years have gone through Britain, gone through the City of London, whether it’s AIG, MF Global, JPMorgan’s London Whale, Bernie Madoff, the Royal Bank of Scotland, HSBC, Barclays. They all go through London. It’s really the epicentre of the global bank fraud market. And, as we cover bank fraud, as kind of the thing, that we cover, we decided that since we’re heading into the endgame, we wanted to be in a front-row seat ‘cos the whole City of London is about to blow up. We want to be there, cover it, and give a first-hand account of that.”
Bonnie Faulkner (c. 31:02): “Boy, I’ll say. But do you ever feel that your safety is at risk, or not?”
Max Keiser: “I don’t have any fear of that. And I’ll tell you why. There was a poll done recently, asking people if they knew who Jamie Dimon was. 66% have absolutely no idea. So, if our work has in some way educated people about the people, that are abusing them, then there might be some risk. But, since 66% of the population or more have absolutely no idea how they are being abused, then the banksters, who are doing the abusing, don’t really care.”
Bonnie Faulkner: “Oh, I see. So, they feel that everyone is so uneducated that who cares if they’re being exposed.”
Max Keiser (c. 31:53): “Yeah, they are not at any risk. There’s no possibility of them being penalised or facing any kind of jail time. So, they are too busy spending their money, having fun. You know? They’ve got yachts to make payments on and vacations to go on. They’re not under any threat whatsoever. I doubt any of them even know I exist.”
Rush Transcript by Felipe Messina for Media Roots and Guns and Butter (Please check back soon for complete transcript)
MEDIA ROOTS – Harry Truman once famously proclaimed that he wished to meet a “one-armed economist,” because every economist he hired for advice on the nation’s economy would give him a “one hand, and the other hand” scenario.
A generation later, economic historian and lecturer, Andrew Gause provides a seemingly simple “one-armed” solution to fix the United States’ economy. Gause instructs to immediately discontinue the distribution of Federal Reserve Notes while reissuing U.S. Notes. Such bills of legal tender would be an “interest-free unit” and, as a result, the nation would have no debt.
In the following interview, Andrew Gause breaks down exactly how to end the Federal Reserve banking system:
1. Print an equivalent money supply of 1’s, 5’s, 10’s, 20’s, 50’s, 100’s in U.S. Notes.
2. Issue an edict asserting that all citizens must turn in all Federal Reserve Notes.
3. Return the Federal Reserve Notes to the Federal Reserve Bank and demand the return of government bonds.
4. Destroy the bonds and create a public national bank that replaces “the Fed.”
Andrew Gause is one of the most respected monetary historians and contemporary experts on American and international banking systems. Not only does Gause understand the intricacies of the Federal Reserve fiat money system, he has also studied every other fiat money system in history and understands that all of these systems ultimately fail. Gause has attracted a wide following with over one thousand television and radio appearances, and has written two books on the subject, The Secret World of Money and Uncle Sam Cooks the Books.
Why is such a simple solution met with resistance?
In the following interview, Andrew Gause compares ending the Federal Reserve Bank to Andrew Jackson’s experience ending the Second Bank of the United States. Both Kennedy and Lincoln issued United States Notes but were ultimately unsuccessful. They were both assassinated before they were able to carry out their plans.
Tom Ball is a guest contributor for Media Roots.
Andrew Gause explains how to end the Federal Reserve Bank System on the Timpone radio show.
Andrew Gause discusses the Financial Reform Act of 2009 and the continued consolidation of financial power to the Federal Reserve Bank.
MEDIA ROOTS — If you’ve taken Economics 101, you may have had the same realisation I did when the course reached the part where the USA, for example, goes off the gold standard and the dollar becomes a purely fiat currency with no gold or anything tangible backing it. When the issues of the business cycle arise, the inherent boom and bust cycles of our capitalist system, and the citizenry, economists, and legislators face the questions of what to do about those recurrent economic recessions, conventional economics says we must cut spending and raise taxes.
And, of course, those actions will be undertaken on the backs of the working-class and in favour of the ruling-class with regressive taxes and budget cuts. Yet, one common sense solution was obvious given the USA’s fiat (or sovereign) currency: Why doesn’t government simply print (or issue) more money, so small businesses can operate, hospitals and schools can be well-funded and accessible to all, and so on? But our academic and civic culture has been so indoctrinated by neoclassical economic dogma the immediate rebuttal, not open for debate, simply insists that would be inflationary. Yet, commercial banks create credit currency all the time, but neoclassical economics doesn’t decry those commercial activities as inflationary.
Thus, many of us have been impressed by the Modern Money Theory (MMT) school of political economics, which empirically confirms such common sense ideas as valid. Media Roots featured Guns and Butter broadcasts of the recent MMT Summit in Rimini, Italy. Particularly, Dr. Stephanie Kelton’s presentations explain what money actually is, how it works today, and how MMT presents viable alternatives to the fiscal austerity now being imposed on Europe and being proposed for the USA by the same banking and financial elites. In a new article published at New Econonomic Perspectives, J.D. Alt uses the children’s game of Monopoly to help us rethink its objective as well as conventional notions of money, banking, and finance. Alt helps us understand why the USA is not broke and fiscal austerity is not inevitable.
NEW ECONOMIC PERSPECTIVES — Why does it seem like there isn’t enough money to pay for the things we really need? The headlines are filled with stories about our nation’s “debt problem” and dire warnings about our impending “bankruptcy.” As an architect who fills his waking hours thinking up all kinds of wonderful things we could be building, I’m alarmed by the idea there isn’t enough money to pay for any of them. Before wasting more time dreaming, I had to find out: Is it really true? Are we reallytoo poor to put America back to work making and building the things we need to maintain a prosperous nation?
Searching for an answer, I discovered a small (but growing) group of economists (see here, here, here, here, here, here) who represent an emerging school of thought known as “modern monetary theory” (MMT). These men and women are valiantly trying to make us all understand a paradigm shift that occurred some forty years ago, when the world abandoned the gold standard. Their key insight shocked me: A sovereign government is never revenue constrained when it is the Monopoly issuer of its own pure fiat currency; it has all the money that’s needed to put its citizens to work building anything—and providing any service—that is desired by the public (provided the real resources are available). Even more remarkable, sovereign “deficits” in the fiat currency are just the accounting record of the surpluses that have been injected into the private economy. Eliminating the sovereign currency deficit by imposing austerity will not make the economy healthier; it will, in effect, bankrupt the citizens!
If this seems to defy logic, stay with me for just a few minutes. I’m going to propose a simple exercise that will help you “see” this reality for yourself. The exercise is simply that everyone join me in a familiar game of Monopoly. By the end of the game, I hope to convince you that MMT is correct and that we could be doing better, much better – for ourselves and future generations—if we just understood and took ad vantage of our modern monetary system.
MEDIA ROOTS — The current Global Recession, which like the Hurricane Katrina disaster, is largely manmade due to poor planning and political will refusing to respond adequately. Italians seem to be ahead of the curve with their response by convening a summit on political economics. Despite a media blackout, over 2,000 Italians packed into a basketball stadium for the first annual grassroots Summit Modern Money Theory 2012 in Rimini, Italy in February. Such a summit on MMT by the Occupy Movement would go far toward increasing our financial and political economics literacy, as a contribution to the various Occupy Movement teach-ins and workshops on political economy toward greater financial literacy, particularly on May Day. Guns and Butter has been broadcasting weekly programmes, featuring highlights from the three-day long event. At Media Roots, we’ve featured the entire series on the MMT Summit.
Perhaps, your Econ 101 experience was like mine; as soon as I got any big ideas, my professor would start dissing ‘command‘ economies and start going on about ‘free market‘ economies. Yet, Dr. Michael Hudson reminds us, “The important thing to realise is that every economy is planned. The question is: Who is going to do the planning?” Dr. Hudson joins his colleagues Dr. Stephanie Kelton, Dr. William K. Black, and Marshall Auerback for the relevant discussion on ‘How to Get Out of the Euro.’ If the banks do the planning, there will be austerity and pain, the people will suffer and lose rights and dignity. If “government, on behalf of Main Street” does the planning “to help long-term growth, to help employment,” then the people stand a fighting chance. MMT explains how this can be done. (Please see transcript below.)
GUNS AND BUTTER — “There is an alternative, even under the screwed up EU structure that exists now. The European Central Bank, as the de facto issuer of currency, could act like a sovereign. It could provide the funds to provide the recovery. And the ECB knows that it has this capacity. THEY DON’T WANT TO USE THE CAPACITY TO HELP THE PEOPLE OF EUROPE.
“There is an alternative, even under their screwed up system; and they refuse to use it. And [Mario] Graghi, in his Wall Street Journal interview, two days ago made this explicit where he said, ‘The European model is dead’—the social model. And that he wanted the private sector, the banks, to discipline the governments.”
Bonnie Faulkner (c. 1:24): “I’m Bonnie Faulkner. Today on Guns and Butter: Marshall Auerback, Michael Hudson, William K. Black, and Stephanie Kelton from the first economic summit on Modern Money Theory in Rimini, Italy in February of 2012. Today’s show: ‘A Debate on How to Get Out of the Euro.’
“We begin with economist and portfolio strategist Marshall Auerback. Marshall Auerback is currently a portfolio strategist with Madison Street partners, a Denver-based investment management group. He is a fellow with the Economists for Peace and Security. And a research associate for the Levy Institute. He is a frequent contributor to New Economic Perspectives.”
Marshall Auerback (c. 2:12): “I’ve been asked to say a few words on the possibility of Italy leaving the Eurozone. I want to stress that this is not necessarily the first option. I think, in fact, this is a last resort, that should be taken with great care and when all other options have been exhausted. I say this because there are no easy options available to you. And I don’t think we’d be honest if we sugar-coated this. So, this is a political judgment, that you, the Italian people, will have to make. It would be presumptuous of me, as a foreigner to advise you on what course of action to take. So, I’m just going to give a very few specific options as to what would be entailed if Italy were to leave the euro. I have a little paper called ‘Exiting the Euro.’ [Snickers]
(c. 3:16) “Okay, so this is what would have to happen, first of all. To exit the euro for a nation to regain its currency sovereignty. Here are the following changes, that would have to occur. First of all, you would have to reintroduce a new currency or the old lira under monopoly issue. Within this currency the national government could purchase anything that was for sale in that currency, including domestic unemployed labour at the same time the central bank, the bank of Italy, would receive a refund of the capital it had contributed to the European Central Bank and it would also recede back all of the foreign currency reserves that it had moved over to the EU system. The nation’s central bank would then regain control of monetary policy, which means that it and not the bond market could set interest rates along the yield curve and add to banks reserves if necessary.
(c. 4:28) “Okay, now, here’s where it gets more complicated. There is clearly some existing sovereign debt that is denominated in euros. This is a short-term problem because the nation that wanted to exit Italy for example would now have to deal with a foreign currency debt problem. Now, to some extent, some of the transfers back to the central banking system from the ECB would help to offset the euro exposure upon exit from the euro. But I’m not going to lie to you; it would be part of a painful adjustment process. And you may have to default. You would, at that point, have to enter into a negotiated settlement, whereby the creditors accepted your local currency or nothing.
(c. 5:26) “Okay, so, this, I think, is the key issue: Now, some say that the financial markets would make it very difficult to exit. They talk about, for example, the dreaded rating agencies would mark you down in the event of a defaultand force higher rates on local debt. My response to that is that they’re doing that anyway. [Snickers] What else is new? [Laughs] [Audience Applause]
“I would also add that we have been downgraded in the United States and our borrowing costs have actually gone lower since that time of that downgrade. These are the same organisations, that were calling toxic subprime mortgages ‘AAA’ as recently as 2007. [Applause] I think even Mr. Berlusconi has more credibility than the credit rating agencies.
(c. 6:30) “Now, we would all stress that it’s very important to retain currency sovereignty. But it doesn’t give you carte blanche to do whatever you want. When we talk about the pursuit of public purpose, which we do a lot in MMT., we are discussing ways that the government will spend, so that it promotes employment. At a very minimum, jobs in a public sector Job Guarantee programme for those, that are currently unemployed, so that we can generate real output growth. The government has to use its newly found fiscal freedom to advance public purpose and not to waste public spending on unproductive pursuits. So, what do I mean by unproductive pursuits? Well, obviously, major handouts to zombie banks counts as an unproductive use of government money. You want to give money, as we like to say in America, to Main Street, rather than Wall Street.
(c. 7:38) “Now, there are clearly going to be practical issues involved in changing back to the lira. First of all, you’d have to amend the computer codes. But you’ve had some experience with that. You all remember the Y2K bug. A lot of hard work had to be done to insure that we did not have a meltdown in our computer system.
“So, how do we support the new lira? Well, the Italian government would have to announce that it will begin taxing exclusively in the new currency, in the new lira. And it will also announce that it will make all payments, going forward, in the new lira, not in euros. That’s the main thing. The government can now provision itself and continue to function on a sustainable basis. So, what will be the value of the new lira? Well, that’s where the markets do come into play. The new currency will be allowed to float. The exchange will be determined between willing buyers and sellers at market prices. Now, as I said about the existing euro debt, that will be a subject of negotiation. But now the leverage rests with the government, not with the markets. It can be a long process. Argentina is still negotiating and litigating claims from the time when it depegged its currency in 2001. That hasn’t stopped Argentina from growing or functioning as a real economy. Same thing in Russia; the rouble collapsed in 1998 against the dollar. The banking system was highly disrupted. The capital markets did not function for a number of months, but today we still have a rouble. We still have a Russian banking system. Russia has survived.
“And the other question is what to about euro bank deposits and euro bank deposit loans. Well, for now they remain in place. There is nothing to stop Italy, ordinary Italians from using euros or having euro deposits. Just like there’s nothing stopping you from having dollar deposits or British pound deposits. Panama has decided to dollarize. Nothing that the United States has done prevents Panama from continuing to use the dollar. Okay, so here is, I think, where the Job Guarantee programme, that Stephanie [Kelton] has discussed, is extremely important. I think it’s absolutely essential this be one of the first programmes that’s introduced by the government because the first thing you want to do is to insure there is minimal unemployment. [Applause]
(c. 10:32) “And for any given size government taxes should be adjusted to insure that the labour force, that works for that wage, be kept to a minimum. So, as low taxes as possible. Remember your taxes are no longer funding your spending; you have fiscal freedom. Now, there is some talk about tax evasion. How do you enforce a tax? Personally, I think that this problem is overstated in Italy. But I think you can maximise compliance by introducing a tax on land, a national real estate tax. Obviously, it’s much more difficult to avoid. You can’t move land around. So, it seems to me that’s an effective way to collect taxes. Compliance would be maximised because if the tax isn’t paid, then the state can simply sell the property at auction. Everybody contributes, either, as an owner of the property or the renter, as the owner’s costs would ultimately be passed through to the renters.
(c. 11:40) “I might probably substantially reduce taxes, such as the VAT because that would penalise the ability to spend. And it is a very regressive tax. [Applause]
“Finally, I would say that all lira bank deposits would be fully insured by the government. I would not insure euro deposits, but I would insure lira deposits. Banks would be government regulated and supervised. They would be prohibited from any secondary market activity, which means no derivatives, no credit default swaps [Applause], no trading against your clients. [Applause] Bankers are there to lend, provide capital for businesses and consumers, so that the economy could grow, not to bet against their consumers, as they do today. [Applause] And I’d probably include substantial capital buffer requirements, around 15% to 20%.
“Those are just a few specific suggestions I have. I know we’re going to discuss them in greater detail on the round table, but I thought I’d introduce these now, as there had been considerable demand for this sort of presentation yesterday during the question period. So, thank you very much.”
Bonnie Faulkner (c. 13:08): “You’ve been listening to economist and portfolio strategist Marshall Auerback. We next hear from economist and historian Michael Hudson. Michael Hudson is a Wall Street financial analyst and distinguished research professor of economics at the University of Missouri, Kansas City. Today’s show: ‘A Debate on How to Get Out of the Euro.’ I’m Bonnie Faulkner. This is Guns and Butter.”
Dr. Michael Hudson: “I will be talking about the small aspects. But I want to talk about the political frame for this about Italy, the way in which it might leave the Eurozone. I think you should ask why Italy wanted to join to begin with. I think that it hoped that somehow joining Europe would solve its own domestic problems. They hoped that Europe would be a civilising influence, helping it solve its political corruption, its tax corruption, its bad financial structure, and, especially, those of its own big banks. But the fact is Europe is only able to impose financial and fiscal austerity. No matter what happens, Italy is going to have to solve its own political and banking problems itself. It’s going to have to deal with its large families and its oligarchy and its predatory finance by itself. Europe is, obviously, not going to help you because the European Union is on the side of big banking and big finance against you. [Applause]
(c. 15:12) “So, as you discuss the alternatives to remaining in the euro, I think you have to say that, if you leave, it’s not going to be out of weakness, not out of default, but because you’re living on a principled position. And you’re leaving, not be leaving the euro, but by your saying, Europe has left the euro. Europe has been captured by the banks. And you’re saying; here’s how Europe should work. You, here, can outline a declaration of independence for how a good Europe should work and you will lead the way into Europe, the new Europe, not out of the old, bad Europe. [Applause]
(c. 16:04) “The important thing to realise is that every economy is planned. The question is: Who is going to do the planning? Will it be, as Marshall said, by Main Street, by government on behalf of Main Street to help long-term growth, to help employment? Or will it be planned by Wall Street or, even worse, by your bankers, which are even worse, even more predatory, even more enjoying evil than I have ever seen on Wall Street. The bank planning is geared toward austerity, not towards economic advance.
“Contrary to what the newspapers say, bank planning wants governments to run deficits; the neoliberals want larger deficits than have ever been run before. And you have seen from Stephanie [Kelton’s] charts that the deficits in the last three years have been enormous into what she called the private sector. But what was her private sector? It wasn’t the labour markets. It wasn’t into industry. It was bailouts for the bankers. The private sector, itself, is divided into the financial sector and the host economy of production and consumption.
“So, I think that if you’re issuing or thinking about issuing a declaration of economic independence and political independence and saying what you think Europe should be, the fiscal policy of the European Central Bank, which is the European government, should be replaced by parliament.
(c. 18:01) “Today’s European Central Bank tells you: We will tell you about your fiscal policy will be. We central bankers will say what the labour policy will be. We want unemployment. They will say what your central policy will be. That is, stop paying pensions, so that the employers can pay the banks.
“What you want is a dependent central bank, a central bank run by government for the people, not for the commercial bankers, that are seeking to replace democracy with oligarchy. [Applause] A real social democratic government would be a real socialist government. As Stephanie explained, it would run deficits to reflate the economy. Countercyclical spending to reflate the economy and restore employment is called hyperinflationby the neoliberals. Employing Italian labour is called turning Italy into Zimbabwe. You have to realise the Orwellian doublethink that is used here. Your policy should be workplace reform, labour security. And your fiscal policy should be untaxing labour by returning Italy’s tax system to real estate and to wealth off the value added tax, which is the most inefficient, the most costly, tax, onto property and wealth taxes. [Applause]
“And, finally, as to the government spending deficit, if Europe tells you to balance the budget, tell them: Okay, we’re starting by withdrawing from NATO. That will put the fear of gawd [Applause], that will put the fear of gawd into their politicians—namely the United States. So, good luck on your declaration of independence. [Applause]”
Paolo Barnard (c.20:20): “What’s gonna happen to my bank account? What’s gonna happen to my savings? What’s gonna happen to my shop? Please answer this, please. People are asking. You know? These are the questions that I’m getting.”
Dr. William K. Black: “What’s happening now? What happens right now is that you’ve lost all power. And they have you completely in their power because of two things and Stephanie [Kelton] has explained them. You are not allowed to have any policy, that keeps people employed because the bond market will destroy you. You are not allowed to have the government step in because of the Stability and Growth Pact. But both of those points of leverage come entirely from the euro. That’s the only reason they have any power. If you have a sovereign currency that floats, the bond markets leave you alone and they go attack the people using the euro. And there is no reason for a Stability and Growth Pact if you’re not on the euro. That’s the only reason it exists. It’s because of the euro. So, it goes away as well. You refuse to deal with it.
(c. 22:02) “What Stephanie [Kelton] showed you, in terms of how your shop works, is the creation of There Is No Alternative where they have shrunk and shrunk and shrunk your policy space to take away every alternative. So, what happens in your shop after you have created and gone back to the lira? Well, that depends on what else you do, how well you adopt theories of Modern Monetary Theory and similar post-Keynesian thought and put people back to work. If you put people back to work, then they have money, then they come to your shop and they buy things. Then you hire workers. That’s called an economic recovery. That’s called a government, that actually works for the people and serves the interests of the people.
“Does it produce inflation? Well, look at the United States. Look at Japan. Japan has a debt-to-GDP ratio twice as large, basically. It does not have inflation. It can borrow money for virtually zero. The United States, after the credit-rating agencies downgraded us can borrow money for very close to zero. The United States, because it has not adopted austerity, is growing. I don’t know if the joke will work in Italian; but we say of the Stability and Growth Pact, that it is an oxymoron produced by regular morons. As Stephanie [Kelton] showed you, it does not produce stability. It produces recurrent recessions. And then when they respond to the recession, they make it worse through austerity. And so it’s not growth, it’s Anti-Growth Pact. It shrinks the economy instead of having it grow; and there is only one thing left in the policy space. All of us, simultaneously, must compete for exports.
“Now, first, that’s impossible because of the fallacy of composition. But, second, the very effort is what they want. This is what we’ve been explaining because the effort is—we call it—the road to Bangladesh. Germans have not been the winners under the Hatz policy. German workers’ real wages have fallen. It is only the German bankers and large industrialists who are winners. And the rest of Europe does not have the productivity levels close to Germany. So, the only way to compete under this strategy is to have wages one-fourth the wages a German worker would have.
(c. 25:35) “So, when we were in Ireland the government strategy is to cut Irish wages, so they could outcompete Portugal. But if you go to Portugal the strategy is to cut wages, so that you could outcompete Greeks. And if you go to Greece, the strategy is to cut wages, so that you could outcompete Turkey. And Turkey’s trying to outcompete China. And China soon will be trying to outcompete Vietnam. And, as I say, the bottom line of all of this is you are in Zimbabwe or Bangladesh, not because of hyperinflation, but because of hypercuts in workers’ wages.
(c. 26:26) “So, to bring it back to your little shop. If you get rid of the euro and follow the types of strategies that we’re talking about, you have a shop, that makes more money because it has more customers because you and everyone else are paying your workers enough they can actually live and buy things. So, demand increases. Employment increases. Could you cause hyperinflation? Of course, it is possible to cause hyperinflation. You have to have intelligent policies. But you need not have even serious inflation. Although, frankly, small inflation would be a good thing right now. [Applause]”
Dr. Michael Hudson (c. 27:20) “Bill talked about German industry running a surplus. But what happens when Germany runs a surplus? You get dollars in exchange. And dollars, as he’s pointed out, are created as a fiatcurrency to reflate the American economy. So, on a global scale, Europe is supporting Zimbabwe; it’s supporting the United States and any other country. This government is creating its own money and running its own deficit. So, you are plugged into a fiat money system. But it’s a dollar system with whom you’re running a balance of payment surplus. So, your austerity and your exports are designed to promote the United States, whose investors come out and buy Siemens. Siemens is largely owned by U.S. investors now. Siemens doesn’t pay any German taxes; and I could go right down the line with other German companies. So, you have to look at this in a global scale: Your pain is to benefit other countries. And what you want is your own independence, so that your effots will support yourself. [Applause]”
Bonnie Faulkner (c. 28:49): “You’ve been listening to lawyer and former bank regulator William K. Black and economist Michael Hudson. William Black is associate professor of law and economics at the University of Missouri, Kansas City and the author of The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry.
“We next hear from Stephanie Kelton. Stephanie Kelton is associate professor of economics at the University of Missouri, Kansas City; research scholar at the Levy Economics Institute; and director of graduate student research at the Center for Full Employment and Price Stability. Today’s show: ‘A Debate On How to Get Out of the Euro.’ I’m Bonnie Faulkner. This is Guns and Butter.”
Dr. Stephanie Kelton (c. 29:48): “The difference with Argentina is that Argentina defaulted. But it didn’t have to launch a new currency. It devalued its existing currency. Okay? Things in Argentina had gotten very bad under IMF austerity. And you ended up with a situation where there was, essentially, no electable party. And that created the conditions, that made an Argentian default and devaluation possible. What was unimaginable before became possible because things had gotten so dire. Argentina was close to being a failed state. But what worked in Argentina was not the default as much as the devaluation. They devalued their currency by 65% on a trade-weighted average against the rest of the world. If this happened in southern European countries, I would expect that the whole trade pattern would be a mess, perhaps collapse for a time. Countries may come out better in the end, but they would come out better in the end with their own currency. So, it seems to me that the best example is not Argentina for what we’re talking about and what Italy one day might decide to do. But Slovenia because Slovenia withdrew and launched their own new currency.
“So, when we were in Ireland, as Bill [Black] mentioned, many, many people asked us what you’re asking us now. If it were easy, Greece probably would’ve done it by now. Everybody wants to know how to get out. Marshall talked about reprogramming the computers. But there’s no undo button for the euro. It’s not easy. And none of us here have ever drafted a blueprint for a country to lay out the steps, that they need to take to withdraw from the currency union and launch their own currency. So, I don’t know if any of us here can answer the detailed questions you so reasonably have. But I know someone who can. I know who drafted the blueprint in Slovenia. So, why don’t we meet next week, we’ll invite him. [Applause] I mean I’m joking, but [Applause] you need—for this level of expertise—you need someone other than the five that you’ve got here today I’m afraid. But it does require a great deal of planning. As I understand it, the gentleman who drafted the Slovenian withdrawal—Slovenia started planning six months ahead of time getting everything in place, accounts, transitions, decisions about when to convert, bank accounts, debt questions, all of the kinds of issues, that Paolo has raised and, that many of you have raised have been dealt with; and in the recent past. And we can get answers to the kinds of questions, that you have. But, unfortunately, I don’t know if any of us here can provide you with adequate answers today.”
Dr. William K. Black (c. 33:50): “Well, a clarification first. [Applause] It was not the default, that caused the crisis in Argentina.”
Dr. Stephanie Kelton: “No, no.”
Dr. William K. Black: “The economy collapsed because of the lack of default in some ways.”
Dr. Stephanie Kelton: “No, no. It was the IMFausterity.”
Dr. William K. Black: “Right. And it was the fact that Argentina pegged the peso to the dollar, so it effectively created a euro-like situation.”
Dr. Stephanie Kelton: “And it ended up with a bailout from the IMF.”
Dr. William K. Black: “And it ended up with a price because the dollar appreciated, that made it very difficult for Argentina to export. And, so, Brazil basically destroyed them in terms of the export markets. And Argentina went from a first-world nation to a third-world nation because of that crisis. As Stephanie said, it’s then the default and the devaluation and the re-adoption of a sovereign currency, that allowed Argentina recover.
“But key things: They did default. They still can’t borrow on conventional terms. As Marshall [Auerback] said, they’re still in litigation, but they’ve averaged over 6% growth in for 15 years. So, yes there are problems. It’s not easy. It’s not clean. But it’s immensely successful. Alright?
“Stephanie is absolutely right that there are an enormous number of technical steps to transition out of the euro back to a new lira. Many of you are old enough to remember that there were months of preparation to convert from the lira to the euro. Right?”
Dr. Stephanie Kelton: “Years.”
Dr. William K. Black (c. 34:58): “That money went out before to the banks, and there were educational programmes about how all of it would work, and there are reprogramming issues, and such. I can tell you, though, that the fundamental question, however, is the one keyed up by Marshall [Auerback]. Italy—first, there’s no one size fits all—Italy is in a position, that if it regains its sovereignty, it can decide: Do we wish to default or not? You are not like Greece. Greece will default. Ireland will default, unless it continues to be insance. Portugal will default, unless it continue to be insane. Italy is a much richer country.
“If you choose to default it gets messier. And you have to have a different plan. You also have to remember it’s a negotiation. And I would guess most people in this room have negotiated.
“You have to be ready to default. You don’t go around simply threatening to do it without the ability and the plan on what you’re going to do. [Applause]”
Marshall Auerback (c. 37:29): “Let me start by saying that most of the things that I suggested this morning were largely based on Warren’s [Mosler’s]proposal. And I’m not trying to suggest that what Warren and I have suggested wouldn’t really work. But I would simply suggest that there would be some disruption. It is operationally feasible, everything, that Warren has suggested. All we are saying is its not the sort of thing that you could decide on the spur of the moment. It doesn’t just happen over five minutes. It does take a degree of planning. There will be negotiations. There will be litigation. It’s very hard to convey that in a blog post. So, it is doable. But I think it would be dishonest of us to suggest that it could be done without any kind of adjustments or any kind of economic disruption.” [Applause]”
Dr. Stephanie Kelton (c. 38:31): “I would also add [Applause]; I know that Marshall [Auerback] and I are both in communication with Warren [Mosler] several times a day. We know him well. And we know what his preferred solution to the ongoing solvency crisis is and has always been. The piece, that Paolo [Barnard] is referring to is a piece, that Warren [Mosler] wrote in response to something that someone sent him saying: Europeans are looking for a plan for default. How do you exit the euro? So, he wrote out his thoughts. They wanted an exit plan. And he produced something. But his preferred plan and the one he continues to push is for the ECB to hold this thing together.
“You know the old joke? Why did the man rob the bank? Because that’s where the money is.
“The solution for Warren [Mosler] has always been simple and painless, unlike a messy default. Warren [Mosler] has always said the whole problem could be solved in five minutes, if the ECB would simply write the check. You know why? Because that’s where the money is. They can’t come to you—and the Greeks and the Portuguese and the Irish—and impose austerity and crush your economies trying to extract euros from the people to transfer them to the bondholders because the effects are going to destroy the European Union. The solution is to have the one who creates the money create the money and stop trying to come and get it from the users of the currency.
“So, Warren’s [Mosler] proposal, Marshall [Auerback], I’ll just give it to you quickly, is for the European Central Bank on an annual basis to make a contribution equal to roughly 10% of the Eurozone’s GDP to give it to every member of the European Monetary Union [EMU]. The funds would be divided on a per capita basis, so that Germany would actually receive the largest payment. It would, therefore, not be viewed as a bailout. Everyone gets it, regardless of the size of their deficit or surplus. And you get it on an annual basis. It’s a revenue distribution. It comes from the only entity in the EMU, that can create the euro, provide you with financial resources, that the government can use to run programmes, a Job Guarantee, whatever it is you need here.
“The thing it deals with immediately is the solvency problem, which is what’s crushing you today. It gets the bond markets off your back. It brings interest rates down. And as that happens, your debts become serviceable, sustainable, and it can be dealt with without a default.”
Bonnie Faulkner (c. 42:07): “You’re listening to professor and economist Stephanie Kelton; economist and portfolio strategist Marshall Auerback; lawyer, author, and former bank regulator William K. Black; and Wall Street financial analyst and research professor of economics Michael Hudson. Today’s show: ‘A Debate On How to Get Out of the Euro.’ I’m Bonie Faulkner. This is Guns and Butter.”
Dr. William K. Black: “Warren’s [Mosler] idea is very interesting. Warren [Mosler] points out that there is an alternative, even under the screwed up EU structure now. The European Central bank, as the de facto issuer of currency, it could provide the funds to provide the recovery. And the ECB knows that it has the capacity. They don’t want to use the capacity to help the people of Europe. [Applause] There is an alternative, even under their screwed up system, but they refuse to use it. And [Mario] Draghi, in his Wall Street Journal interview, two days ago made this explicit where he said, ‘The European model is dead’—the social model. And that he wanted the private sector, the banks, to discipline the governments.
“So, let me turn to Paolo’s [Barnard] question. What do you do if—and it’s really a question of devaluation and they’re really two questions; one is the Latvian question, though it’s not unique to Latvia. In Latvia, of course, you could have borrowed in your local currency or you could borrow in the euro. And the interest rate on mortgages was much lower than the euro. So, people borrowed in the euro and the local currency lost tremendous value and it was much harder to repay the mortgages. It happened in Iceland as well.
(c. 44:27) “You have a general problem once you go to the lira, if the euro continues to operate as an alternative where you’re exposing your consumers to potential huge currency risk. And that exposes the banks if it’s your local banks, that are making the loans denominated in euros to substantial credit risk. So, going forward you might want to say, at least, that Italian banks must issue their mortgages in lira, as opposed to euros. So, that’s the going-forward question. And it’s a question for you. And, again, this is our point. There are many questions for you. And Italy has to make its own decisions about how it wants to run its financial system. There’s no one game plan, that tells you the right way.
(c. 45:27) “The second question is what do I do with my mortgage that’s already in euros if we develop a lira and if we decide a la Argentina that we want to devalue? And Randy’s [Wray] point was: If this produces massive problems in the ability to repay, then that is a place where the government should step in using the resources, that Modern Monetary Theory makes clear, and other theories make clear, are available to it, if it has a sovereign currency, and deal with the problem instead of letting millions of Italians go bankrupt. And, yes, that’s very much something that I know we agree with and my guess is there’s a consensus. And, now, someone who’s actually been in Latvia will probably tell me why I’m wrong about Latvia.
Dr. Michael Hudson (c. 46:20): “I was a research director of the Riga Graduate School of Law and senior consultant to the largest political coalition, the Harmony Centre Party there. Latvia has not devalued its currency against the euro. It has remained in the euro straightjacket. The problem that it’s dealing with is exactly what Professor Black has explained. What do you do if your mortgages are denominated in euros, or sterling, or dollars, and the currency goes down against it?
“We have solicited the advice of international lawyers and the answer is quite simple. First, Latvia redenominates all mortgages in its own domestic currency, then it lets the domestic currency float, or devalue. Any sovereign government can do what President Roosevelt did in the United States in 1933. Contracts in America had a gold clause, saying that the creditors had a right to collect the value in gold. President Roosevelt simply said: We’re America. We can nullify the gold clause. And he did it. And John Maynard Keynes, in London, wrote an article saying President Roosevelt is magnificently right.
“Latvia and Italy have the same option. You can nullify the foreign currency clause in your mortgages and your personal loans and your commercial loans. You can simply redenominate all loans in your own currency. Under international law this can be done. So, follow the U.S. model and do it. [Applause]”
Dr. Stephanie Kelton (c. 48:16): “Paolo [Barnard] just asked me to maybe say one more word about Randy’s [Wray] proposal about the mortgages. It’s not something that we support just here. It’s also something we support in the U.S. We also suffer from a very, very serious problem in our mortgage markets where millions of Americans—we use the term under waterin their homes; they owe more on the mortgage than the property is worth and I imagine you’re dealing with a very serious problem with that as well. Marshall [Auerback] and I were looking at the rate of growth of private sector debt in Italy over the last ten years. And we were comparing the rate of growth of public sector debt to the rate of growth in the private sector debt, looking at Italy from 2000 until 2010. And what you find is that the public sector debt has actually increased only modestly over that period, while the private sector debt has absolutely exploded. And, so, mortgage debt is part of that, but it’s not all of that.
“And what you may need and likely need is what so many countries in the world need; the U.S., certainly, does. And that is our own debt restructuring, a writedown. We need a writedown of these debts, so that they become affordable to the people. They aren’t affordable now. So, if you were to leave the euro and launch your own currency, those debts would be redenominated; and they would be written down. And it would be the Italian government’s decision to decide how much to write them down.
“One of the proposals, that we here in the U.S., that some of the MMT economists have supported is that homes, that are currently underwater, could be purchased at a fair market price by the government and then leased back to the owner over time. They wouldn’t lose the home. They wouldn’t have to disrupt their families. But they would be given an affordable payment. And they would be allowed to stay in the home and, ultimately, regain ownership of the property, but on terms very different from the ones, that exist today. [Applause]”
(c. 51:10) “The only other thing I would point out is that even with the inflation, Argentina has been growing between 6% and 10% every year for the past decade. That’s a huge difference from what it was doing under the IMF-sponsored programmes of the 1990s. There is also a large component of commodities-related inflation and that’s in part related, I think, to the financialisation of the commodities complex because you now have Wall Street banks speculating in oil. They speculate on food prices. And these have played a major role in helping to create a significant cost-push inflation in the commodities sector. And this is a question of, again, financial regulation. It’s not something specific to Argentina. [Applause]
(c. 52:14) “Marshall, you know, those high-growth rates, that Argentina managed to achieve were a result, in part, from the fact that Argentina defaulted in the context of a booming global economy. And we sit, today, discussing the possibility of a default in the context of a global economy, that is teetering, I think, on the brink of another recession. And, so, while the rest of the world helped to lift Argentina up, an exit today wouldn’t have that same benefit. But with a sovereign currency and MMT and the ability to craft your own economic policies to create full employment at home, to sustain incomes for the Italian people, you can lift yourselves. [Applause]”
Bonnie Faulkner (c. 53:25): “You’ve been listening to professor and research scholar Stephanie Kelton; economist and portfolio strategist Marshall Auerback; lawyer, author, and former bank regulator William K. Black; and Wall Street financial analyst and research professor of economics Michael Hudson.
“Today’s show has been: ‘A Debate on How to Get Out of the Euro.’ This debate concluded the first Italian economic summit on Modern Money Theory in Rimini, Italy. Please visit the University of Missouri, Kansas City, New Economic Perspectives blog at www.neweconomicperspectives.org.