viernes, 2 de julio de 2010

Cómo organizar un sindicato agrario horizontal exitoso

June 30, 2010

A Message From Below

Going Horizontal at the US Social Forum


If one political concept dominated the proceedings of the US Social Forum, it was horizontalism. Organizers mentioned it in relation to media access, workshops panelists offered it as an alternative to top-down NGOs and political parties and participants already engaged in politics employed it as a measurement of their own groups’ internal functioning. To some, horizontalism represented more of an abstract democratic sense informed by anarchist sentiments. For others, it meant thinking through power relations that operate inside the new structures they sought to set up – frequently things like cooperatives, community supported agriculture or community gardens. Kandace Vallejo an organizer with the Student Farmworker Alliance (SFA) offered a more concrete definition.

Vallejo spoke as part of the panel I helped to organize for the Socialist Party USA at the Social Forum. SFA is an ally organization to the Coalition of Immokalee Workers (CIW), an organization that represents farm workers throughout the state of Florida. Vallejo spoke about CIW’s remarkable string of victories at a moment when nearly all of organized labor seems to be in deep retreat. Multinational food giants such as Taco Bell, McDonalds and WholeFoods have all yielded to the demands of this organization.

Vallejo presented these successful campaigns as a part of a larger process of trial and error. At first, workers in the region did what workers everywhere do – prepare to fight their bosses. This meant organizing against the growers. However, CIW soon realized that multinational food corporations held growers hostage by their demands for cheap produce. In response, the focus shifted to these companies and, in the process, the CIW needed to call on external ally organizations to assist the organizing. High-profile campaigns ensued as picket lines were thrown up in front of Taco Bell and other food chain stores throughout the country.

How could the CIW maintain this broad network of allies and still keep the focus on the workplace struggles? The driving force behind these campaigns, Vallejo related, are the workers themselves. The initial organizing was quite challenging since workers came from radically different historical traditions in Haiti, Central America and Mexico. Eventually, after struggling together, the workers devised a three-prong system for organizing – popular education, the identification and development of leaders and mass mobilizations.

Vallejo described the manner in which popular education played a critical role in mobilizing both the workers and the surrounding community. By employing graphic art and a low power radio station, CIW is able to reach a beyond the worksite and enter into the everyday lives of people in the region. Organizers employ the notion of “accompaniment” to express their desire to march with the community not over its head or not in an attempt to force changes that they see as desirable, but the community does not.

However, the internal workings of the CIW express the clearest ethic of horizontalism. Vallejo spoke about the yearly assemblies of CIW members in which major decisions about campaigns and the election of representatives take place. Further, elected leaders are held to a similar position as that of workers themselves as no salary exceeds three times the average worker and staff must spend ¼ of the season working in the fields. Such measures are meant to prevent the formation of elitism amongst officials and are a far cry from the way a typical trade union operates. CIW members work side-by-side with their representatives thereby placing real limits on vertical hierarchies within the worker's movement. This type of organization also allows the campaigns to flow from the bottom up as ally organizations express solidarity with real organizing conducted by the farm workers themselves.

The next test for the CIW and its allies will come as they continue a campaign that targets the Trader Joe’s chain. Once again a corporation that markets a sense of sustainability to its consumers has proved to be resistant when farm workers come knocking. And so, again, the CIW will roll out its networks of allies in order to employ mass mobilization as a tactic to lessen exploitation and defend the base level organizing underway in Florida.

The CIW was not the only organization advertising its horizontal structures. Many other workshops offered the argument that transforming a society based on hierarchy would require a grassroots democratic response. Such a response aims at simultaneously challenging the non-profit and NGO sector and the political party formations that rest on vanguardist or hierarchical assumptions.

So, as the latest version of the US Social Forum draws to a close, a message from below is beginning to materialize – the self-organization, self-reliance and self-determination that horizontalism allows will be a fundamental part of any attempt at social transformation in the US. Exploitative vertical institutions such as multinational corporations beware.

Billy Wharton is a writer and activist whose articles have appeared in the Washington Post, the NYC Indypendent, Spectrezine and the Monthly Review Zine. He can be reached at

El fin del primer mundo: el desmantelamiento del Estado de bienestar

Weekend Edition
June 25 - 27, 2010

EU Today, US Tomorrow

Europe's Fiscal Dystopia: the "New Austerity" Road


Europe is committing fiscal suicide – and will have little trouble finding allies at this weekend’s G-20 meetings in Toronto. Despite the deepening Great Recession threatening to bring on outright depression, European Central Bank (ECB) president Jean-Claude Trichet and prime ministers from Britain’s David Cameron to Greece’s George Papandreou (president of the Socialist International) and Canada’s host, Conservative Premier Stephen Harper, are calling for cutbacks in public spending.

The United States is playing an ambiguous role. The Obama Administration is all for slashing Social Security and pensions, euphemized as “balancing the budget.” Wall Street is demanding “realistic” write-downs of state and local pensions in keeping with the “ability to pay” (that is, to pay without taxing real estate, finance or the upper income brackets). These local pensions have been left unfunded so that communities can cut real estate taxes, enabling site-rental values to be pledged to the banks of interest. Without a debt write-down (by mortgage bankers or bondholders), there is no way that any mathematical model can come up with a means of paying these pensions. To enable workers to live “freely” after their working days are over would require either (1) that bondholders not be paid (“unthinkable”) or (2) that property taxes be raised, forcing even more homes into negative equity and leading to even more walkaways and bank losses on their junk mortgages. Given the fact that the banks are writing national economic policy these days, it doesn’t look good for people expecting a leisure society to materialize any time soon.

The problem for U.S. officials is that Europe’s sudden passion for slashing public pensions and other social spending will shrink European economies, slowing U.S. export growth. U.S. officials are urging Europe not to wage its fiscal war against labor quite yet. Best to coordinate with the United States after a modicum of recovery.

Saturday and Sunday will see the six-month mark in a carefully orchestrated financial war against the “real” economy. The buildup began here in the United States. On February 18, President Obama stacked his White House Deficit Commission (formally the National Commission on Fiscal Responsibility and Reform) with the same brand of neoliberal ideologues who comprised the notorious 1982 Greenspan Commission on Social Security “reform.”

The pro-financial, anti-labor and anti-government restructurings since 1980 have given the word “reform” a bad name. The commission is headed by former Republican Wyoming Senator Alan Simpson (who explained derisively that Social Security is for the “lesser people”) and Clinton neoliberal ErskineBowles, who led the fight for the Balanced Budget Act of 1997. Also on the committee are bluedog Democrat Max Baucus of Montana (the pro-Wall Street Finance Committee chairman). The result is an Obama anti-change dream: bipartisan advocacy for balanced budgets, which means in practice to stop running budget deficits – the deficits that Keynes explained were necessary to fuel economic recovery by providing liquidity and purchasing power.

A balanced budget in an economic downturn means shrinkage for the private sector. Coming as the Western economies move into a debt deflation, the policy means shrinking markets for goods and services – all to support banking claims on the “real” economy.

The exercise in managing public perceptions to imagine that all this is a good thing was escalated in April with the manufactured Greek crisis. Newspapers throughout the world breathlessly discovered that Greece was not taxing the wealthy classes. They joined in a chorus to demand that workers be taxed more to make up for the tax shift off wealth. It was their version of the Obama Plan (that is, old-time Rubinomics).

On June 3, the World Bank reiterated the New Austerity doctrine, as if it were a new discovery: The way to prosperity is via austerity. “Rich counties can help developing economies grow faster by rapidly cutting government spending or raising taxes.” The New Fiscal Conservatism aims to corral all countries to scale back social spending in order to “stabilize” economies by a balanced budget. This is to be achieved by impoverishing labor, slashing wages, reducing social spending and rolling back the clock to the good old class war as it flourished before the Progressive Era.

The rationale is the discredited “crowding out” theory:

Budget deficits mean more borrowing, which bids up interest rates. Lower interest rates are supposed to help countries – or would, if borrowing was for productive capital formation. But this is not how financial markets operate in today’s world. Lower interest rates simply make it cheaper and easier for corporate raiders or speculators to capitalize a given flow of earnings at a higher multiple, loading the economy down with even more debt!

Alan Greenspan parroted the World Bank announcement almost word for word in a June 18 Wall Street Journal op-ed. Running deficits is supposed to increase interest rates. It looks like the stage is being set for a big interest-rate jump – and corresponding stock and bond market crash as the “suckers’ rally” comes to an abrupt end in months to come.

The idea is to create an artificial financial crisis, to come in and “save” it by imposing on Europe and North America a “Greek-style” cutbacks in social security and pensions. For the United States, state and local pensions in particular are to be cut back by “emergency” measures to “free” government budgets.

All this is an inversion of the social philosophy that most voters hold. This is the political problem inherent in the neoliberal worldview. It is diametrically opposed to the original liberalism of Adam Smith and his successors. The idea of a free market in the 19th century was one free from predatory rentier financial and property claims. Today, an Ayn-Rand-style “free market” is a market free for predators. The world is being treated to a travesty of liberalism and free markets.

This shows the usual ignorance of how interest rates are really set – a blind spot which is a precondition for being approved for the post of central banker these days. Ignored is the fact that central banks determine interest rates by creating credit. Under the ECB rules, central banks cannot do this. Yet that is precisely what central banks were created to do. European governments are obliged to borrow from commercial banks.

This financial stranglehold threatens either to break up Europe or to plunge it into the same kind of poverty that the EU is imposing on the Baltics. Latvia is the prime example. Despite a plunge of over 20 per cent in its GDP, its central bankers are running a budget surplus, in the hope of lowering wage rates. Public-sector wages have been driven down by over 30 per cent, and the government expresses the hope for yet further cuts – spreading to the private sector. Spending on hospitals, ambulance care and schooling has been drastically cut back.

What is missing from this argument? The cost of labor can be lowered by a classical restoration of progressive taxes and a tax shift back onto property – land and rentier income. Instead, the cost of living is to be raised, by shifting the tax burden further onto labor and off real estate and finance. The idea is for the economic surplus to be pledged for debt service.

In England, Ambrose Evans-Pritchard has described a “euro mutiny” against regressive fiscal policy. But it is more than that. Beyond merely shrinking the economy, the neoliberal aim is to change the shape of the trajectory along which Western civilization has been moving for the past two centuries. It is nothing less than to roll back Social Security and pensions for labor, health care, education and other public spending, to dismantle the social welfare state, the Progressive Era and even classical liberalism.

So we are witnessing a policy long in the planning, now being unleashed in a full-court press. The rentier interests, the vested interests that a century of Progressive Era, New Deal and kindred reforms sought to subordinate to the economy at large, are fighting back. And they are in control, with their own representatives in power – ironically, as Social Democrats and Labor party leaders, from President Obama here to President Papandreou in Greece and President Jose Luis Rodriguez Zapatero in Spain.

Having bided their time for the past few years the global predatory class is now making its move to “free” economies from the social philosophy long thought to have been irreversibly built into the economic system: Social Security and old-age pensions so that labor didn’t have to be paid higher wages to save for its own retirement; public education and health care to raise labor productivity; basic infrastructure spending to lower the costs of doing business; anti-monopoly price regulation to prevent prices from rising above the necessary costs of production; and central banking to stabilize economies by monetizing government deficits rather than forcing the economy to rely on commercial bank credit under conditions where property and income are collateralized to pay the interest-bearing debts, culminating in forfeitures as the logical culmination of the Miracle of Compound Interest.

This is the Junk Economics that financial lobbyists are trying to sell to voters: “Prosperity requires austerity.” “An independent central bank is the hallmark of democracy.” “Governments are just like families: they have to balance the budget.” “It is all the result of aging populations, not debt overload.” These are the oxymorons to which the world will be treated during the coming week in Toronto.

It is the rhetoric of fiscal and financial class war. The problem is that there is not enough economic surplus available to pay the financial sector on its bad loans while also paying pensions and social security. Something has to give. The commission is to provide a cover story for a revived Rubinomics, this time aimed not at the former Soviet Union but here at home. Its aim is to scale back Social Security while reviving George Bush’s aborted privatization plan to send FICA paycheck withholding into the stock market – that is, into the hands of money managers to stick into an array of junk financial packages designed to skim off labor’s savings.

So Obama is hypocritical in warning Europe not to go too far too fast to shrink its economy and squeeze out a rising army of the unemployed. His idea at home is to do the same thing. The strategy is to panic voters about the federal debt – panic them enough to oppose spending on the social programs designed to help them. The fiscal crisis is being blamed on demographic mathematics of an aging population – not on the exponentially soaring debt overhead, junk loans and massive financial fraud that the government is bailing out.

What really is causing the financial and fiscal squeeze, of course, is the fact that that government funding is now needed to compensate the financial sector for what promises to be year after year of losses as loans go bad in economies that are all loaned up and sinking into negative equity.

When politicians let the financial sector run the show, their natural preference is to turn the economy into a grab bag. And they usually come out ahead. That’s what the words “foreclosure,” “forfeiture” and “liquidate” mean – along with “sound money,” “business confidence” and the usual consequences, “debt deflation” and “debt peonage.”

Somebody must take a loss on the economy’s bad loans – and bankers want the economy to take the loss, to “save the financial system.” From the financial sector’s vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy. Government social spending (on everything apart from bank bailouts and financial subsidies), disposable personal income are to be cut back to keep the debt overhead from being written down. Corporate cash flow is to be used to pay creditors, not employ more labor and make long-term capital investment.

The economy is to be sacrificed to subsidize the fantasy that debts can be paid, if only banks can be “made whole” to begin lending again – that is, to resume loading the economy down with even more debt, causing yet more intrusive debt deflation.

This is not the familiar old 19th-century class war of industrial employers against labor, although that is part of what is happening. It is above all a war of the financial sector against the “real” economy: industry as well as labor.

The underlying reality is indeed that pensions cannot be paid – at least, not paid out of financial gains. For the past fifty years the Western economies have indulged the fantasy of paying retirees out of purely financial gains (M-M’ as Marxists would put it), not out of an expanding economy (M-C-M’, employing labor to produce more output). The myth was that finance would take the form of productive loans to increase capital formation and hiring. The reality is that finance takes the form of debt – and gambling. Its gains were therefore made from the economy at large. They were extractive, not productive. Wealth at the rentier top of the economic pyramid shrank the base below. So something has to give. The question is, what form will the “give” take? And who will do the giving – and be the recipients?

The Greek government has been unwilling to tax the rich. So labor must make up the fiscal gap, by permitting its socialist government to cut back pensions, health care, education and other social spending – all to bail out the financial sector from an exponential growth that is impossible to realize in practice. The economy is being sacrificed to an impossible dream. Yet instead of blaming the problem on the exponential growth in bank claims that cannot be paid, bank lobbyists – and the G-20 politicians dependent on their campaign funding – are promoting the myth that the problem is demographic: an aging population expecting Social Security and employer pensions. Instead of paying these, governments are being told to use their taxing and credit-creating power to bail out the financial sector’s claims for payment.

Latvia has been held out as the poster child for what the EU is recommending for Greece and the other southern EU countries in trouble: Slashing public spending on education and health has reduced public-sector wages by 30 per cent, and they are still falling. Property prices have fallen by 70 percent – and homeowners and their extended family of co-signers are liable for the negative equity, plunging them into a life of debt peonage if they do not take the hint and emigrate.

The bizarre pretense for government budget cutbacks in the face of a post-bubble economic downturn is that the supposed aim is to rebuild “confidence.” It is as if fiscal self-destruction can instill confidence rather than prompting investors to flee the euro. The logic seems to be the familiar old class war, rolling back the clock to the hard-line tax philosophy of a bygone era – rolling back Social Security and public pensions, rolling back public spending on education and other basic needs, and above all, increasing unemployment to drive down wage levels. This was made explicit by Latvia’s central bank – which EU central bankers hold up as a “model” of economic shrinkage for other countries to follow.

It is a self-destructive logic. Exacerbating the economic downturn will reduce tax revenues, making budget deficits even worse in a declining spiral. Latvia’s experience shows that the response to economic shrinkage is emigration of skilled labor and capital flight. Europe’s policy of planned economic shrinkage in fact controverts the prime assumption of political and economic textbooks: the axiom that voters act in their self-interest, and that economies choose to grow, not to destroy themselves. Today, European democracies – and even the Social Democratic, Socialist and labour Parties – are running for office on a fiscal and financial policy platform that opposes the interests of most voters, and even industry.

The explanation, of course, is that today’s economic planning is not being done by elected representatives. Planning authority has been relinquished to the hands of “independent” central banks, which in turn act as the lobbyists for commercial banks selling their product – debt. From the central bank’s vantage point, the “economic problem” is how to keep commercial banks and other financial institutions solvent in a post-bubble economy. How can they get paid for debts that are beyond the ability of many people to pay, in an environment of rising defaults?

The answer is that creditors can get paid only at the economy’s expense. The remaining economic surplus must go to them, not to capital investment, employment or social spending.

This is the problem with the financial view. It is short-term – and predatory. Given a choice between operating the banks to promote the economy, or running the economy to benefit the banks, bankers always will choose the latter alternative. And so will the politicians they support.

Governments need huge sums to bail out the banks from their bad loans. But they cannot borrow more, because of the debt squeeze. So the bad-debt loss must be passed onto labor and industry. The cover story is that government bailouts will permit the banks to start lending again, to reflate the Bubble Economy’s Ponzi-borrowing. But there is already too much negative equity and there is no leeway left to restart the bubble. Economies are all “loaned up.” Real estate rents, corporate cash flow and public taxing power cannot support further borrowing – no matter how wealth the government gives to banks. Asset prices have plunged into negative equity territory. Debt deflation is shrinking markets, corporate profits and cash flow. The Miracle of Compound Interest dynamic has culminated in defaults, reflecting the inability of debtors to sustain the exponential rise in carrying charges that “financial solvency” requires.

If the financial sector can be rescued only by cutting back social spending on Social Security, health care and education, bolstered by more privatization sell-offs, is it worth the price? To sacrifice the economy in this way would violate most peoples’ social values of equity and fairness rooted deep in Enlightenment philosophy.

That is the political problem: How can bankers persuade voters to approve this under a democratic system? It is necessary to orchestrate and manage their perceptions. Their poverty must be portrayed as desirable – as a step toward future prosperity.

A half-century of failed IMF austerity plans imposed on hapless Third World debtors should have dispelled forever the idea that the way to prosperity is via austerity. The ground has been paved for this attitude by a generation of purging the academic curriculum of knowledge that there ever was an alternative economic philosophy to that sponsored by the rentier Counter-Enlightenment. Classical value and price theory reflected John Locke’s labor theory of property: A person’s wealth should be what he or she creates with their own labor and enterprise, not by insider dealing or special privilege.

This is why I say that Europe is dying. If its trajectory is not changed, the EU must succumb to a financial coup d’êtat rolling back the past three centuries of Enlightenment social philosophy. The question is whether a break-up is now the only way to recover its social democratic ideals from the banks that have taken over its central planning organs.

Michael Hudson is a former Wall Street economist and now a Distinguished Research Professor at University of Missouri, Kansas City (UMKC), and president of the Institute for the Study of Long-Term Economic Trends (ISLET). He is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website,

Un mundo sin dinero: una alternativa viable anárquica

Weekend Edition
June 25 - 27, 2010

Local Exhange Trading Systems

What If the Greeks Did This?


Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally”

-- John Maynard Keynes

This is an attempt to think outside the box, because any sorts of thinking inside the box on Greece and countries in similar situations hasn't led to anything and will not either. But if the reader knows about some unconventional proposal that I may have overlooked, point me to it!
Here follows my proposal - comments are welcome:

An alliance of large grass roots organisation (typically: unions) sets up a cooperative bank-like operation ("BLO"). Probably it should formally be an association requiring membership to participate (more on this below). This BLO issues "value points" (an arbitrarily chosen term, from now on abbreviated "VP's" -- it could be called "units", "work units", "credits", "coupons", whatever -- but should for legal reasons not be called "money" or "Drachmas"). Technically, the BLO is just a national office with computer capacity and a few employees. There are no branches. A member gets a VP "account" with the BLO. To use the account the member needs a mobile phone subscription. When opening an account, (s)he is automatically offered credit up to a standard amount of VP's from the BLO. Such a "start loan" has the purpose of enabling the person to start transacting with others. It is primarily meant as a medium of exchange, and not as a store of value. It is interest-free, but there is a very small membership fee per account, which is only to cover the expenses of the BLO office and computer/network costs. This fee must be paid in Euros/regular money. The VP loan has limited duration, a few months. When the loan expires, the borrower has the right to an automatically renewed loan, but the maximum amount allowed may have been adjusted somewhat up or down in relation to the last loan received. More on this below.

Technological progress makes this possible

What is to be proposed here is a national and extremely efficient version of a LETS (Local Exchange Trading System), or a local currency system. These are basically barter schemes but strongly improved by using a local medium of exchange. Members gain points by supplying goods or services to other members. Such points gained are in the next round used to buy goods or services from other participants. The big advantage is that this enables economic activities locally which would else not have taken place due to lack of a regular medium of exchange (i.e. money). A LETS system has traditionally been managed by some trusted person(s) keeping tally of everyones' points account on a computer. This is done when reports of exchanges are received. Such a system is only manageable when it is confined to some local community. Another factor limiting the geographical and population scope of such schemes is that participants need to know which other agents (persons, firms) are also in the scheme, and what sort of services or goods they offer.

A local currency system does a similar job as a LETS scheme. In that case one may have circulating paper currency resembling regular money, something that eliminates the need for account updates with each transaction, but which may be legally difficult to uphold due to the state's monopoly on money issuance.

A LETS-like scheme must do the following:

* account for transactions (or run a local monetary system)

* give participants an easy and fast way to find other agents in the system and what they offer (or demand).

Today, with most people having mobile phones, and also access to the Internet (whether at home, work or elsewhere), both challenges may be elegantly and cheaply met, and "the local community" may be expanded to encompass a country. Reporting of transactions is done via mobile phone/SMS and automatically received and accounted for on a server. And a web site data base (possibly on the same server), updated by participants and having a Google-like search system, will enable participants to advertise themselves or to easily find sellers and and buyers anywhere of the relevant goods or services.

Gradual increase in transactions

Mobile phone transactions with other BLO members may be implemented through one of the technically proven schemes already in operation in some developing countries. There are no physical/paper VP's in circulation. People and firms offering goods and services will gradually - as the scheme gets more popular - decide to accept a certain share of VP's as payment, while the rest must still be in Euros. Such a share is decided freely and individually by the seller, and may also be adjusted at any time with circumstances. The same holds for wages: employers and employees may as the scheme gets widely accepted, agree on a certain share of wages being paid in VP's, a share that may be re-negotiated as things develop.

Pure fiat money

The VP's are pure fiat money. They do not have any property giving it an intrinsic value like money issued by a central bank, which has indisputable value by being the sole currency that may be used to pay taxes (as per the "modern money" or "Chartalist" view). People or firms will therefore accept VP's in payment only if they believe that a sufficient amount of other people/firms will accept them. This outcome is probable however, since today's only alternative for the Greeks (and other nations in a similar situation) of too low and further shrinking income in Euros over many years, is much worse.

Building confidence

Such a scheme has dynamics which may be unstable both ways: confidence building more confidence, or decreasing confidence leading to hyperinflation and collapse. One should ensure a basic and initial level of confidence by the BLO being launched and run by (a) large, national and well established organisation(s). Second, and most important, by controlling the amount of VP's in circulation, based on observing the average acceptance of VP's as a share of payment together with Euros, it should be possible to uphold the needed amount of confidence in the system. The amount in circulation may be limited by renewing loans with a lower amount when earlier loans expire. Then the borrower will have to accept a reduction of the amount in his/hers account. To avoid runaway inflation in VP's, one should probably start the process by issuing a restricted amount (see below), and then letting the aggregate amount grow (or in between shrink) based on the observed impact. Note that the existence of VP's only as electronic entities on a computer (no physical "currency"), combined with the fact that the initial issued loan has not in any way been "earned" by the account holder, allows the scheme to freely regulate the amount of VP's in circulation upwards or even downwards, by adjusting all accounts with the same amount. This is a new and potent macroeconomic control instrument that is not available in a regular monetary system.

Why is membership necessary?

As already mentioned, the BLO should be organised as an association requiring membership. Then the VP's are not a state-controlled medium of exchange like Euros, but a device for members to exchange goods and labour between them. Hopefully this will make it difficult for the state to ban such a system, something it will possibly or even probably want to do.

There is a further good argument for membership requirement: One should avoid giving the well-to-do a free lunch in the form of an automatic BLO loan, on top of the ample buying power they possess in Euros. They should as a rule only be allowed to open an account, but not have access to an automatically given and renewed VP loan. The BLO should be targeted towards the less well-off in society. This may be achieved by having two grades of membership. Level 1 is open to all (including firms): you get an account but no initial loan. Level 2 (call it "core" membership) additionally qualifies for the loan. Core membership should only be given to people already belonging to one or more of the organisations behind the BLO (unions and similar popular organisations, for instance farmers'), and to the unemployed. And it should be automatically given, to give the scheme a flying start.

One could modify the rules somewhat by allowing level 2 membership for persons that do not initially qualify, but who are recommended by a core member. But it is probably wise to start the process carefully by only giving automatic loans to core members, and later relax the rules in a controlled manner, based on how things develop. Account holders that default on their loans above some defined level of transgression may be excluded as members of the system, and their accounts discontinued.

Credit above the automatic amount?

In an initial period, the system should be simple and only have the purpose of enabling transactions between agents that lack a medium of exchange. If the scheme exhibits strong growth and widening acceptance, the possibility of extending larger VP loans to applicants may be considered. But this would demand a dramatic increase in the staff and organisation complexity of the BLO because loan applicants have to be vetted and collateral has to be posted.

Political resistance

On may expect that such a scheme will be opposed by the state and derided by the economic establishment, including most media pundits. But criticism in itself is not a fundamental obstacle. A bigger danger is whether the scheme may be banned based on the country's laws, like the Austrian state did in 1933 against the succesful local currency in the town of Wörgl. Hopefully, organising the scheme as an association with transactions only being available to members and no money-like paper VP's in circulation, will prevent such an outcome.

Another and perhaps more surprising source of resistance may be the leadership in some of the mass organisations whose members would benefit from such a scheme. Many such leaders are anchored in a marxist/communist/left socialist tradition. The proposal may easily be seen by some of these as a "petty bourgeouis" invention of the "green" "alternative" type, only giving the masses "illusions" and "leading them astray in the struggle against capitalism and for socialism".

Better than the only and bleak alternative

By the proposed scheme it should be possible to activate a large underused potential that Greece (and other Eurozone countries) has, unemployed or underemployed people. It will also primarily stimulate domestic production, since VP's may not be used to pay for imports. Enabling unemployed or underemployed people to work for each other and (increasingly) to exchange goods and services with the rest of society, will - with immediate effects - ameliorate the dramatic and persistent decrease in living standards for most people, which is the bleak and only future (lasting many years) that the powers that be and most pundits are able to come up with.

(Note however: possibly the best solution would have been to revert to a national currency combined with partial foreign currency debt forgiveness, as argued by some dissident voices. But this seems to be politically totally out of the question for those in power. Therefore the above "VP" proposal.)

Trond Andressen is a lecturer in the Department of Engineering Cybernetics at the Norwegian University of Science and Technology in Trondheim. He can be reached at:

Posible desarrollo catastrófico de la fuga de petróleo en el Golfo de México

Editors' note for first-time visitors: What follows is a comment from a The Oil Drum reader. To read what The Oil Drum staff members are saying about the Deepwater Horizon Spill, please visit the front page. (Were the US government and BP more forthcoming with information and details, the situation would not be giving rise to so much speculation about what is actually going on in the Gulf. This should be run more like Mission Control at NASA than an exclusive country club function--it is a public matter--transparency, now!)

OK let's get real about the GOM oil flow. There doesn't really seem to be much info on TOD that furthers more complete understanding of what's really happening in the GOM.
As you have probably seen and maybe feel yourselves, there are several things that do not appear to make sense regarding the actions of attack against the well. Don't feel bad, there is much that doesn't make sense even to professionals unless you take into account some important variables that we are not being told about. There seems to me to be a reluctance to face what cannot be termed anything less than grim circumstances in my opinion. There certainly is a reluctance to inform us regular people and all we have really gotten is a few dots here and there...

First of all...set aside all your thoughts of plugging the well and stopping it from blowing out oil using any method from the top down. Plugs, big valves to just shut it off, pinching the pipe closed, installing a new bop or lmrp, shooting any epoxy in it, top kills with mud etc etc etc....forget that, it won't be's done and over. In fact actually opening up the well at the subsea source and allowing it to gush more is not only exactly what has happened, it was probably necessary, or so they think anyway.

So you have to ask WHY? Why make it worse?...there really can only be one answer and that answer does not bode well for all of us. It's really an inescapable conclusion at this point, unless you want to believe that every Oil and Gas professional involved suddenly just forgot everything they know or woke up one morning and drank a few big cups of stupid and got assigned to directing the response to this catastrophe. Nothing makes sense unless you take this into account, but after you will see the "sense" behind what has happened and what is happening. That conclusion is this:

The well bore structure is compromised "Down hole".

That is something which is a "Worst nightmare" conclusion to reach. While many have been saying this for some time as with any complex disaster of this proportion many have "said" a lot of things with no real sound reasons or evidence for jumping to such conclusions, well this time it appears that they may have jumped into the right place...

This was probably our best and only chance to kill this well from the top down. This "kill mud" is a tried and true method of killing wells and usually has a very good chance of success. The depth of this well presented some logistical challenges, but it really should not of presented any functional obstructions. The pumping capacity was there and it would have worked, should have worked, but it didn't.

It didn't work, but it did create evidence of what is really happening. First of all the method used in this particular top kill made no sense, did not follow the standard operating procedure used to kill many other wells and in fact for the most part was completely contrary to the procedure which would have given it any real chance of working.

When a well is "Killed" using this method heavy drill fluid "Mud" is pumped at high volume and pressure into a leaking well. The leaks are "behind" the point of access where the mud is fired in, in this case the "choke and Kill lines" which are at the very bottom of the BOP (Blow Out Preventer) The heavy fluid gathers in the "behind" portion of the leaking well assembly, while some will leak out, it very quickly overtakes the flow of oil and only the heavier mud will leak out. Once that "solid" flow of mud is established at the leak "behind" the well, the mud pumps increase pressure and begin to overtake the pressure of the oil deposit. The mud is established in a solid column that is driven downward by the now stronger pumps. The heavy mud will create a solid column that is so heavy that the oil deposit can no longer push it up, shut off the pumps...the well is can no longer flow.

Usually this will happen fairly quickly, in fact for it to work at must happen quickly. There is no "trickle some mud in" because that is not how a top kill works. The flowing oil will just flush out the trickle and a solid column will never be established. Yet what we were told was "It will take days to know whether it
worked"...."Top kill might take 48 hours to complete"...the only way it could take days is if BP intended to do some "test fires" to test integrity of the entire system. The actual "kill" can only take hours by nature because it must happen fairly rapidly. It also increases strain on the "behind" portion and in this instance we all know that what remained was fragile at best.

Early that afternoon we saw a massive flow burst out of the riser "plume" area. This was the first test fire of high pressure mud injection. Later on same day we saw a greatly increased flow out of the kink leaks, this was mostly mud at that time as the kill mud is tanish color due to the high amount of Barite which is added to it to weight it and Barite is a white powder.

We later learned the pumping was shut down at midnight, we weren't told about that until almost 16 hours later, but by then...I'm sure BP had learned the worst. The mud they were pumping in was not only leaking out the "behind" was leaking out of someplace forward...and since they were not even near being able to pump mud into the deposit itself, because the well would be dead long before...and the oil was still coming up, there could only be one conclusion...the wells casings were ruptured and it was leaking "down hole"

They tried the "Junk shot"...the "bridging materials" which also failed and likely made things worse in regards to the ruptured well casings.

"Despite successfully pumping a total of over 30,000 barrels of heavy mud, in three attempts at rates of up to
80 barrels a minute, and deploying a wide range of different bridging materials, the operation did not overcome the flow from the well."

80 Barrels per minute is over 200,000 gallons per hour, over 115,000 barrels per day...did we seen an increase over and above what was already leaking out of 115k bpd?....we did would have been a massive increase in order of multiples and this did not happen.

"The whole purpose is to get the kill mud down,” said Wells. “We'll have 50,000 barrels of mud on hand to kill this well. It's far more than necessary, but we always like to have backup."

Try finding THAT quote's been's a cached copy of a quote...,%E2%80%9D+said+Wells.+%E2%80%9CWe'll+have+50,000+barrels+of+mud+on+hand+to+kill+this+well.+It's+far+more+than+necessary,+but+we+always+like+to+have+backup.%E2%80%9D&cd=1&hl=en&ct=clnk&gl=us

"The "top kill" effort, launched Wednesday afternoon by industry and government engineers, had pumped enough drilling fluid to block oil and gas spewing from the well, Allen said. The pressure from the well was very low, he said, but persisting."

"Allen said one ship that was pumping fluid into the well had run out of the fluid, or "mud," and that a second ship was on the way. He said he was encouraged by the progress."

Later we found out that Allen had no idea what was really going on and had been "Unavailable all day"

So what we had was BP running out of 50,000 barrels of mud in a very short period of time. An amount far and above what they deemed necessary to kill the well. Shutting down pumping 16 hours before telling anyone, including the president. We were never really given a clear reason why "Top Kill" failed, just that it couldn't overcome the well.

There is only one article anywhere that says anything else about it at this time of writing...and it's a relatively obscure article from the wall street journal "online" citing an unnamed source.

"WASHINGTON—BP PLC has concluded that its "top-kill" attempt last week to seal its broken well in the Gulf of
Mexico may have failed due to a malfunctioning disk inside the well about 1,000 feet below the ocean floor.

The disk, part of the subsea safety infrastructure, may have ruptured during the surge of oil and gas up the well on April 20 that led to the explosion aboard the Deepwater Horizon rig, BP officials said. The rig sank two days later, triggering a leak that has since become the worst in U.S. history.

The broken disk may have prevented the heavy drilling mud injected into the well last week from getting far enough down the well to overcome the pressure from the escaping oil and gas, people familiar with BP's findings said. They said much of the drilling mud may also have escaped from the well into the rock formation outside the wellbore.

As a result, BP wasn't able to get sufficient pressure to keep the oil and gas at bay. If they had been able to build up sufficient pressure, the company had hoped to pump in cement and seal off the well. The effort was deemed a failure on Saturday.

BP started the top-kill effort Wednesday afternoon, shooting heavy drilling fluids into the broken valve known as a blowout preventer. The mud was driven by a 30,000 horsepower pump installed on a ship at the surface. But it was clear from the start that a lot of the "kill mud" was leaking out instead of going down into the well."

There are some inconsistencies with this article.
There are no "Disks" or "Subsea safety structure" 1,000 feet below the sea floor, all that is there is well bore. There is nothing that can allow the mud or oil to "escape" into the rock formation outside the well bore except the well, because it is the only thing there.

All the actions and few tid bits of information all lead to one inescapable conclusion. The well pipes below the sea floor are broken and leaking. Now you have some real data of how BP's actions are evidence of that, as well as some murky statement from "BP officials" confirming the same.

I took some time to go into a bit of detail concerning the failure of Top Kill because this was a significant event. To those of us outside the real inside loop, yet still fairly knowledgeable, it was a major confirmation of what many feared. That the system below the sea floor has serious failures of varying magnitude in the complicated chain, and it is breaking down and it will continue to.

What does this mean?

It means they will never cap the gusher after the wellhead. They cannot...the more they try and restrict the oil gushing out the bop?...the more it will transfer to the leaks below. Just like a leaky garden hose with a nozzle on it. When you open up the nozzle? doesn't leak so bad, you close the nozzle? leaks real bad,
same dynamics. It is why they sawed the riser off...or tried to anyway...but they clipped it off, to relieve pressure on the leaks "down hole". I'm sure there was a bit of panic time after they crimp/pinched off the large riser pipe and the Diamond wire saw got stuck and failed...because that crimp diverted pressure and flow to the rupture down below.

Contrary to what most of us would think as logical to stop the oil mess, actually opening up the gushing well and making it gush more became direction BP took after confirming that there was a leak. In fact if you note their actions, that should become clear. They have shifted from stopping or restricting the gusher to opening it up and catching it. This only makes sense if they want to relieve pressure at the leak hidden down below the seabed.....and that sort of leak is one of the most dangerous and potentially damaging kind of leak there could be. It is also inaccessible which compounds our problems. There is no way to stop that leak from above, all they can do is relieve the pressure on it and the only way to do that right now is to open up the nozzle above and gush more oil into the gulf and hopefully catch it, which they have done, they just neglected to tell us why, gee thanks.

A down hole leak is dangerous and damaging for several reasons.
There will be erosion throughout the entire beat up, beat on and beat down remainder of the "system" including that inaccessible leak. The same erosion I spoke about in the first post is still present and has never stopped, cannot be stopped, is impossible to stop and will always be present in and acting on anything that is left which has crude oil "Product" rushing through it. There are abrasives still present, swirling flow will create hot spots of wear and this erosion is relentless and will always be present until eventually it wears away enough material to break it's way out. It will slowly eat the bop away especially at the now pinched off riser head and it will flow more and more. Perhaps BP can outrun or keep up with that out flow with various suckage methods for a period of time, but eventually the well will win that race, just how long that race will be? one really knows....However now?...there are other problems that a down hole leak will and must produce that will compound this already bad situation.

This down hole leak will undermine the foundation of the seabed in and around the well area. It also weakens the only thing holding up the massive Blow Out Preventer's immense bulk of 450 tons. In fact?...we are beginning to the results of the well's total integrity beginning to fail due to the undermining being caused by the leaking well bore.

The first layer of the sea floor in the gulf is mostly lose material of sand and silt. It doesn't hold up anything and isn't meant to, what holds the entire subsea system of the Bop in place is the well itself. The very large steel connectors of the initial well head "spud" stabbed in to the sea floor. The Bop literally sits on top of the pipe and never touches the sea bed, it wouldn't do anything in way of support if it did. After several tens of feet the seabed does begin to support the well connection laterally (side to side) you couldn't put a 450 ton piece of machinery on top of a 100' tall pipe "in the air" and subject it to the side loads caused by the ocean currents and expect it not to bend over...unless that pipe was very much larger than the machine itself, which you all can see it is not. The well's piping in comparison is actually very much smaller than the Blow Out Preventer and strong as it may be, it relies on some support from the seabed to function and not literally fall over...and it is now showing signs of doing just that....falling over.

If you have been watching the live feed cams you may have noticed that some of the ROVs are using an inclinometer...and inclinometer is an instrument that measures "Incline" or tilt. The BOP is not supposed to be tilting...and after the riser clip off operation it has begun to...

This is not the only problem that occurs due to erosion of the outer area of the well casings. The way a well casing assembly functions it that it is an assembly of different sized "tubes" that decrease in size as they go down. These tubes have a connection to each other that is not unlike a click or snap together locking action. After a certain length is assembled they are cemented around the ouside to the earth that the more rough drill hole is bored through in the well making process. A very well put together and simply explained process of "How to drill a deep water oil well" is available here:

The well bore casings rely on the support that is created by the cementing phase of well construction. Just like if you have many hands holding a pipe up you could put some weight on the top and the many hands could hold the pipe and the weight on top easily...but if there were no hands gripping and holding the pipe?...all the weight must be held up by the pipe alone. The series of connections between the sections of casings are not designed to hold up the immense weight of the BOP without all the "hands" that the cementing provides and they will eventually buckle and fail when stressed beyond their design limits.

These are clear and present dangers to the battered subsea safety structure (bop and lmrp) which is the only loose cork on this well we have left. The immediate (first 1,000 feet) of well structure that remains is now also undoubtedly compromised. bad as that is? is far from the only possible problems with this very problematic well. There were ongoing troubles with the entire process during the drilling of this well. There were also many comprises made by BP IMO which may have resulted in an overall weakened structure of the entire well system all the way to the bottom plug which is over 12,000 feet deep. Problems with the cementing procedure which was done by Haliburton and was deemed as “was against our best practices.” by a Haliburton employee on April 1st weeks before the well blew out. There is much more and I won't go into detail right now concerning the lower end of the well and the troubles encountered during the whole creation of this well and earlier "Well control" situations that were revieled in various internal BP e-mails. I will add several links to those documents and quotes from them below and for now, address the issues concerning the upper portion of the well and the region of the sea floor.

What is likely to happen now?

Well...none of what is likely to happen is good, in's about as bad as it gets. I am convinced the erosion and compromising of the entire system is accelerating and attacking more key structural areas of the well, the blow out preventer and surrounding strata holding it all up and together. This is evidenced by the tilt of the blow out preventer and the erosion which has exposed the well head connection. What eventually will happen is that the blow out preventer will literally tip over if they do not run supports to it as the currents push on it. I suspect they will run those supports as cables tied to anchors very soon, if they don't, they are inviting disaster that much sooner.

Eventually even that will be futile as the well casings cannot support the weight of the massive system above with out the cement bond to the earth and that bond is being eroded away. When enough is eroded away the casings will buckle and the BOP will collapse the well. If and when you begin to see oil and gas coming up around the well area from under the BOP? or the area around the well head connection and casing sinking more and more rapidly? won't be too long after that the entire system fails. BP must be aware of this, they are mapping the sea floor sonically and that is not a mere exercise. Our Gov't must be well aware too, they just are not telling us.

All of these things lead to only one place, a fully wide open well bore directly to the oil deposit...after that, it goes into the realm of "the worst things you can think of" The well may come completely apart as the inner liners fail. There is still a very long drill string in the well, that could literally come flying I said...all the worst things you can think of are a possibility, but the very least damaging outcome as bad as it is, is that we are stuck with a wide open gusher blowing out 150,000 barrels a day of raw oil or more. There isn't any "cap dome" or any other suck fixer device on earth that exists or could be built that will stop it from gushing out and doing more and more damage to the gulf. While at the same time also doing more damage to the well, making the chance of halting it with a kill from the bottom up less and less likely to work, which as it stands now? the only real chance we have left to stop it all.

It's a race now...a race to drill the relief wells and take our last chance at killing this monster before the whole weakened, wore out, blown out, leaking and failing system gives up it's last gasp in a horrific crescendo.

We are not even 2 months into it, barely half way by even optimistic estimates. The damage done by the leaked oil now is virtually immeasurable already and it will not get better, it can only get worse. No matter how much they can collect, there will still be thousands and thousands of gallons leaking out every minute, every hour of every day. We have 2 months left before the relief wells are even near in position and set up to take a kill shot and that is being optimistic as I said.

Over the next 2 months the mechanical situation also cannot improve, it can only get worse, getting better is an impossibility. While they may make some gains on collecting the leaked oil, the structural situation cannot heal itself. It will continue to erode and flow out more oil and eventually the inevitable collapse which cannot be stopped will happen. It is only a simple matter of who can "get there first" or the well.

We can only hope the race against that eventuality is one we can win, but my assessment I am sad to say is that we will not.

The system will collapse or fail substantially before we reach the finish line ahead of the well and the worst is yet to come.

Sorry to bring you that news, I know it is grim, but that is the way I see it....I sincerely hope I am wrong.

We need to prepare for the possibility of this blow out sending more oil into the gulf per week then what we already have now, because that is what a collapse of the system will cause. All the collection efforts that have captured oil will be erased in short order. The magnitude of this disaster will increase exponentially by the time we can do anything to halt it and our odds of actually even being able to halt it will go down.

The magnitude and impact of this disaster will eclipse anything we have known in our life times if the worst or even near worst happens...

We are seeing the puny forces of man vs the awesome forces of nature.
We are going to need some luck and a lot of effort to win...
and if nature decides we ought to lose, we will....

Reference materials:

On April 1, a job log written by a Halliburton employee, Marvin Volek, warns that BP’s use of cement “was
against our best practices.”

An April 18 internal Halliburton memorandum indicates that Halliburton again warned BP about its practices,
this time saying that a “severe” gas flow problem would occur if the casings were not centered more carefully.

Around that same time, a BP document shows, company officials chose a type of casing with a greater risk of

Mark Hafle, the BP drilling engineer who wrote plans for well casings and cement seals on the Deepwater
Horizon's well, testified that the well had lost thousands of barrels of mud at the bottom. But he said models
run onshore showed alterations to the cement program would resolve the issues, and when asked if a cement
failure allowed the well to "flow" gas and oil, he wouldn't capitulate.

Hafle said he made several changes to casing designs in the last few days before the well blew, including the
addition of the two casing liners that weren't part of the original well design because of problems where the
earthen sides of the well were "ballooning." He also worked with Halliburton engineers to design a plan for
sealing the well casings with cement.

graphic of fail
Casing joint

Kill may take until Christmas

BP Used Riskier Method to Seal Well Before Blast

BP memo test results

Investigation results

The information from BP identifies several new warning signs of problems. According to BP there were three flow
indicators from the well before the explosion.

BP, what we know

What could have happened

1. Before or during the cement job, an influx of hydrocarbon enters the wellbore.
2. Influx is circulated during cement job to wellhead and BOP.
3. 9-7/8” casing hanger packoff set and positively tested to 6500 psi.
4. After 16.5 hours waiting on cement, a negative test performed on wellbore below BOP.
(~ 1400 psi differential pressure on 9-7/8” casing hanger packoff and ~ 2350 psi on
double valve float collar)
5. Packoff leaks allowing hydrocarbon to enter wellbore below BOP. 1400 psi shut in
pressure observed on drill pipe (no flow or pressure observed on kill line)
6. Hydrocarbon below BOP is unknowingly circulated to surface while finishing displacing
the riser.
7. As hydrocarbon rises to surface, gas break out of solution further reduces hydrostatic
pressure in well. Well begin to flow, BOPs and Emergency Disconnect System (EDS)
activated but failed.
8. Packoff continues to leak allowing further influx from bottom.

T/A daily log 4-20

Cement plug 12,150 ft SCMT logging tool
SCMT (Slim Cement Mapping Tool)
Schlumberger Partial CBL done.

Schlum CBL tools

Major concerns, well control, bop test.

Energy & commerce links to docs.

well head on sea floor

Well head on deck of ship

BP's youtube propoganda page, a lot of rarely seen vids here....FWIW

I used to cover the energy business (oil, gas and alternative) here in Texas, and the few experts in the oil field -- including geologists, chemists, etc. -- able or willing to even speak of this BP event told me early on that it is likely the entire reserve will bleed out. Unfortunately none of them could say with any certainty just how much oil is in the reserve in question because, for one thing, the oil industry and secrecy have always been synonymous. According to BP data from about five years ago, there are four separate reservoirs containing a total of 2.5 billion barrels (barrels not gallons). One of the reservoirs has 1.5 billion barrels. I saw an earlier post here quoting an Anadarko Petroleum report which set the total amount at 2.3 billion barrels. One New York Times article put it at 2 billion barrels.

If the BP data correctly or honestly identified four separate reservoirs then a bleed-out might gush less than 2 to 2.5 billion barrels unless the walls -- as it were -- fracture or partially collapse. I am hearing the same dark rumors which suggest fracturing and a complete bleed-out are already underway. Rumors also suggest a massive collapse of the Gulf floor itself is in the making. They are just rumors but it is time for geologists or related experts to end their deafening silence and speak to these possibilities.

All oilmen lie about everything. The stories one hears about the extent to which they will protect themselves are all understatements. BP employees are already taking The Fifth before grand juries, and attorneys are laying a path for company executives to make a run for it.


viernes, 7 de mayo de 2010

Dos formas diferentes de enfrentar la crisis: Venezuela y Grecia

Weekend Edition
May 7 - 9, 2010

Compare and Contrast
Venezuela and Greece By MARK WEISBROT

With Venezuela’s economy having contracted last year (as did the vast majority of economies in the Western Hemisphere), the economy suffering from electricity shortages, and the value of domestic currency having recently fallen sharply in the parallel market, stories of Venezuela’s economic ruin are again making headlines.

The Washington Post, in a news article that reads more like an editorial, reports that Venezuela is “gripped by an economic crisis,” and that “years of state interventions in the economy are taking a brutal toll on private business.”

There is one important fact that is almost never mentioned in news articles about Venezuela, because it does not fit in with the narrative of a country that has spent wildly throughout the boom years, and will soon, like Greece, face its day of reckoning. That is the government’s debt level: currently about 20 percent of GDP. In other words, even as it was tripling real social spending per person, increasing access to health care and education, and loaning or giving billions of dollars to other Latin American countries, Venezuela was reducing its debt burden during the oil price run-up. Venezuela’s public debt fell from 47.5 percent of GDP in 2003 to 13.8 percent in 2008. In 2009, as the economy shrank, public debt picked up to 19.9 percent of GDP. Even if we include the debt of the state oil company, PDVSA, Venezuela’s public debt is 26 percent of GDP. The foreign part of this debt is less than half of the total.

Compare this to Greece, where public debt is 115 percent of GDP and currently projected to rise to 149 percent in 2013. (The European Union average is about 79 percent.)

Given the Venezuelan government’s very low public and foreign debt, the idea the country is facing an “economic crisis” is simply wrong. With oil at about $80 a barrel, Venezuela is running a sizeable current account surplus, and has a healthy level of reserves. Furthermore, the government can borrow internationally as necessary – last month China agreed to loan Venezuela $20 billion in an advance payment for future oil deliveries.

Nonetheless, the country still faces significant economic challenges, some of which have been worsened by mistaken macroeconomic policy choices. The economy shrank by 3.3 percent last year. The international press has trouble understanding this, but the problem was that the government’s fiscal policy was too conservative – cutting spending as the economy slipped into recession. This was a mistake, but hopefully the government will reverse this quickly with its planned expansion of public investment this year, including $6 billion for electricity generation.

The government’s biggest long-term economic mistake has been the maintenance of a fixed, overvalued exchange rate. Although the government devalued the currency in January, from 2.15 to 4.3 to the dollar for most official foreign exchange transactions, the currency is still overvalued. The parallel or black market rate is at more than seven to the dollar.

An overvalued currency – by making imports artificially cheap and the country’s exports more expensive - hurts Venezuela’s non-oil tradable goods’ sectors and prevents the economy from diversifying away from oil. Worse still, the country’s high inflation rate (28 percent over the last year, and averaging 21 percent annually over the last seven years) makes the currency more overvalued in real terms each year. (The press has misunderstood this problem, too – the inflation itself is too high, but the main damage it does to the economy is not from the price increases themselves but from causing an increasing overvaluation of the real exchange rate.)

But Venezuela is not in the situation of Greece – or even Portugal, Ireland, or Spain. Or Latvia or Estonia. The first four countries are stuck with an overvalued currency – for them, the euro – and implementing pro-cyclical fiscal policies (e.g. deficit reduction) that are deepening their recessions and/or slowing their recovery. They do not have any control over monetary policy, which rests with the European Central Bank. The latter two countries are in a similar situation for as long as they keep their currencies pegged to the euro, and have lost output 6 to 8 times that of Venezuela over the last two years.

By contrast, Venezuela controls its own foreign exchange, monetary and fiscal policies. It can use expansionary fiscal and monetary policy to stimulate the economy, and also exchange rate policy – by letting the currency float. A managed, or “dirty” float – in which the government does not set a target exchange rate but intervenes when necessary to preserve exchange rate stability – would suit the Venezuelan economy much better than the current fixed rate. The government could manage the exchange rate at a competitive level, and not have to waste so many dollars, as it does currently, trying to narrow the gap between the parallel and the official rate. Although there were (as usual, exaggerated) predictions that inflation would skyrocket with the most recent devaluation, it did not – possibly because most foreign exchange transactions take place through the parallel market anyway.

Venezuela is well situated to resolve its current macroeconomic problems and pursue a robust economic expansion, as it had from 2003-2008. The country is not facing a crisis, but rather a policy choice.

Mark Weisbrot is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This article was originally published in The Guardian.

lunes, 5 de abril de 2010

La guerra contra las drogas: un punto de vista diferente

March 22, 2010

Why the Death Toll in Juarez Will Continue to Rise
Obama's Bloody War in Mexico

Last Saturday, a US consulate employee and his pregnant wife were gunned down in their SUV in Ciudad Juarez while their seven month old baby watched from the backseat. Just minutes later, another consulate employee was killed at point-blank range in the northern part of the city. Both shootouts took place in broad daylight and were executed with precision, clearly the work of professionals.

The only thing that stands out about these incidents, is that two of the victims were American citizens. Otherwise, it's just "business as usual" in the murder capital of the western hemisphere. Juarez has been rocked by a wave of gangland-style killings for the last two years. The statistics are mind-boggling. 50 people were killed last weekend alone (four of the victims were beheaded) and there have been more than 500 homicides since the beginning of 2010. All told, more than 19,000 people have been killed since Mexican President Felipe Calderon took office in 2006. Juarez is presently the most dangerous place in the world, worse has Baghdad or Kabul.

* * *

The violence in Juarez is not accidental. It's the result of a deeply-flawed US/Mexico policy. The Merida Initiative, which was signed in 2007 by President George W. Bush and Calderon, has led to the militarization of law enforcement which has intensified the battle between the state and the drug cartels. Plan Mexico--as Merida is also called--has increased the incidents of gang-related crime and murder by many orders of magnitude. The military is uniquely unsuited for tasks that should be handled by criminal investigators or the police. That's why the death toll keeps rising. The bottom line, is that the troubles in Juarez have more to do with Plan Mexico than they do with drug-trafficking. This is "policy-driven" carnage and the United States is largely to blame.

Shortly after he took office in 2006, Calderon began using the military to battle Mexico's powerful narco-mafia. Since then, there's been a steady escalation in troop deployments and violence across the country. The Calderon strategy has been universally condemned except (of course) by US think-tank ideologues who applaud the bloodletting as proof of its success. Laura Carlsen, the director of the Americas Policy Program in Mexico City, was recently interviewed about Plan Mexico and asked whether the policy has changed under Barack Obama. Here's what she said:

“The Obama administration has supported Plan Mexico and even requested, and received from Congress, additional funds beyond what the Bush administration requested. In the three years since Calderon launched the war on drugs in Mexico with the support of the US government drug related violence has shot up to over 15,000 executions and formal reports of violations of human rights have increased sixfold.....Washington recognizes serious problems with the drug war model and yet continues to claim, absurdly, that the rise in violence in Mexico is a good sign--it means that the cartels are feeling the heat..

“Plan Mexico... grew out of the extension of NAFTA into security areas, known as the Security and Prosperity Partnership.... It was designed in Washington as a way to "push out the borders" of the US security perimeter, that is, that Mexico would take on US security priorities including policing its southern border and allowing US companies and agents into Mexico's intelligence and security operations."

NAFTA transformed Juarez into a manufacturing hub where assembly plants and electronics companies turned out all types of goods that were shipped to the United States tariff-free. In the last few years, however, corporations have exited Mexico en masse seeking cheaper labor costs in China. According to the Wall Street Journal: "Since 2005, 10,600 businesses—roughly 40 per cent of Juárez's businesses—have closed their doors, according to the country's group representing local chambers of commerce." Free trade has left Juarez in ruins which has only added to the current troubles.

Laura Carlsen again:

"The Bush administration used the counterterrorism paradigm to extend US presence in strategic areas. In Mexico, the idea was to open up lucrative defense and intelligence contracts while aiding the rightwing government, which still faced serious questions of legitimacy due to unresolved accusations of fraud in the 2006 elections."

Carlsen confirms that Plan Mexico is not so much about the fictitious war on drugs as it is about creating a business-friendly authoritarian regime that will crush any threat to state/corporate power. By throwing his support behind the current policy, Obama is merely picking up where his predecessor G.W. Bush left off.

Calderon has largely complied with whatever directives he's gotten from Washington. In practical terms, he's assumed the mantle of "provincial governor" charged with carrying out US security operations south of the border; a regular Mexican Karzai. And he has performed reasonably well too, which is to say that he's turned the country to a free-fire zone where anything-goes as long as the billions in US aid continues to roll in. A recent survey shows that more than half of the population now believes that Calderon has made the country more dangerous. In an interview with Democracy Now, author Charles Bowden describes what life is really like for the people who live in Juarez and have to adjust to the daily violence:

"This is in a city where people live in cardboard boxes sometimes. Ten thousand businesses have given up and closed in the last year. Thirty to sixty thousand people from Juárez, mainly the rich, have moved across the river to El Paso for safety, including the mayor of Juárez, who likes to bunk in El Paso. And the publisher of the newspaper there lives in El Paso. Somewhere between 100,000 and 400,000 people simply left the city. A lot of the problem is economic, not simply violence. At least 100,000 jobs in the border factories have vanished during this recession because of the competition from Asia. There’s 500 to 900 gangs there, estimates vary.

So what you have is about 10,000 federal troops and federal police agents all marauding. You have a city where no one goes out at night; where small businesses all pay extortion; where 20,000 cars were officially stolen last year; where 2,600-plus people were officially murdered last year; where nobody keeps track of the people who have been kidnapped and never come back; where nobody counts the people buried in secret burying grounds, and they, in an unseemly way, claw out of the earth from time to time. You’ve got a disaster. And you have a million people, too poor to leave, imprisoned in it. That’s the city."

The war in Juarez isn't about narcotics; it's about a foreign policy that supports proxy-armies to impose order through police-state repression and militarization. The media keep reiterating the same tedious refrain about the ongoing "drug war", but it's all baloney. The so-called war on drugs--like the war on terror--is merely the public relations mask which conceals the political agenda. Regional hegemony is the ostensible goal, and extreme violence is the cornerstone upon which the entire policy rests. Here's a clip from an article in the Independent which sums up the futility of the drug war and its corrosive effect on government institutions:

"The outlawing and criminalizing of drugs and consequent surge in prices has produced a bonanza for producers everywhere, from Kabul to Bogota, but, at the Mexican border, where an estimated $39,000m in narcotics enter the rich US market every year, a veritable tsunami of cash has been created. The narcotraficantes, or drug dealers, can buy the murder of many, and the loyalty of nearly everyone. They can acquire whatever weapons they need from the free market in firearms north of the border and bring them into Mexico with appropriate payment to any official who holds his hand out.

“And drug-related bribery is gnawing deep into US institutions, as Calderon has long alleged. Thomas Frost of the US Dept of Homeland Security says that last year the department accused 839 of its own agents of corruption.... the FBI ... dug up more than 400 public corruption cases that resulted in well over 100 arrests and more than 130 state and federal prosecutions...

The narcos have penetrated the US embassy in Mexico City (as they had previously the one in Colombia's capital, Bogota), their funds allowing them to siphon out a stream of intelligence about future operations against the narcos." ("The US-Mexico border: where the drugs war has soaked the ground blood red", Hugh O'Shaughnessy The Independent)

The real reason US powerbrokers want to militarize Mexico is to counter the leftist social movements which have sprouted up everywhere in Latin America. The administration wants to get a foot in the door so they can roll back the advances that have been made in health care, civil liberties, education, wealth redistribution and land reform. The US wants to quash the burgeoning unions, the indigenous communities, and pro-democracy groups which have taken root and replaced the kleptocratic regimes which were propped up by Washington. The Merida Initiative is an attempt to return to the dark days of oligarchy and torture, of death squads and "dirty wars". Clearly, Uncle Sam will not be easily deterred; it will take determined resistance from grassroots organizations and engaged citizens.

As for the faux "drug war" here's an extended excerpt from an article written by CounterPunch co-editors Cockburn & St Clair back in June, 1998, stemming from their book Whiteout:

"Amid the United Nations’ special session in New York on drugs, hundreds of prominent people from around the world signed on to the view that the drug war has been a disaster and “the time has come for a truly open and honest dialogue about future global drug control policies.

“The statements to which the signatories put their names are mostly unimpeachable common sense: ‘Drug war politics impede public health efforts to stem the spread of HIV, hepatitis and other infectious diseases. Human rights are violated, environmental assaults perpetrated and prisons inundated with hundreds of thousands of drug law violators.’

“All true, and every phrase repeated, proved and doubly proved year after year. So why does the drug war grind on, decade after decade, immune to reason, often grotesque in its hypocrisy?...

“The answer is plain enough, particularly if one takes a look at the history of drug wars over the past 150 years. These drug wars are either enterprises that expand the drug trade or pretexts for social and political repression. In either case, the aim of halting the production, shipment and consumption of drugs is not on the agenda.

“Domestically, the ‘drug war’ has always been a pretext for social control, going back to the racist application of drug laws against Chinese laborers in the recession of the 1870s when these workers were viewed as competition for the dwindling number of jobs available. ....

“President Nixon was helpfully explicit in his private remarks. H.R. Haldeman recorded in his diary a briefing by the president in 1969, prior to launching of the war on drugs: ‘Nixon emphasized that you have to face the fact the whole problem is really the blacks. The key is to devise a system that recognizes this while not appearing to.’

“So what was ‘the system’ duly devised? The 1986 Anti-Drug Abuse Act, with its 29 new minimum mandatory sentences, and the 100-to-1 sentencing ratio between possession of crack and powder cocaine, became a system for locking up a disproportionate number of black people.

“So to call for a ‘truly open and honest dialogue’ about drug policy, as all those distinguished signatories in the advertisement requested, is about as realistic as asking the U.S. government to nationalize the oil industry. Essentially, the drug war is a war on the poor and the dangerous classes, here and elsewhere. How many governments are going to give up on that?”

Obama knows that the war on drugs is a sham, but that won't stop him from committing billions more to Plan Mexico. In fact, it's already a done deal. What the administration wants is a "hemispheric security policy" which creates a hospitable environment for resource extraction and corporate exploitation. And, they don't care how many people get killed in the process. That's why the death toll in Juarez will to continue to rise.

Mike Whitney lives in Washington state. He can be reached at

viernes, 19 de febrero de 2010

Impunidad a cuatro años de la tragedia de Pasta de Conchos

México SA

Cuarto aniversario de la tragedia de Pasta de Conchos

Campea la plena impunidad
Carlos Fernández-Vega

Hoy se cumple el cuarto aniversario de la tragedia en la mina Pasta de Conchos, en San Juan de Sabinas, Coahuila, concesionada a Germán Larrea, uno de los multimillonarios Forbes, el mismo que hoy pretende sepultar, también, a los mineros de Cananea. Cuatro largos años han transcurrido, periodo que involucra a dos catastróficos gobiernos panistas, a igual número de inquilinos de Los Pinos (uno peor que el otro, lo que ya es decir), de secretarios del (des) Trabajo y de cabezas visibles en la Comisión Nacional de los Derechos Humanos, así como un gobernador, y la justicia, junto con los cuerpos de los trabajadores que perdieron la vida en aquel "accidente", se mantiene bajo los escombros. Fue una tragedia igual de evitable que la ocurrida en junio pasado en la guardería ABC de Hermosillo, y en ambos casos los responsables permanecen impunes.

Ocurrió a escasos nueve meses de que Vicente Fox abandonara la comodidad de Los Pinos, sólo para que uno peor, Felipe Calderón, ocupara la misma silla. De despedida, el primero de los nefastos personajes prometió todo e incumplió todo; de llegada, el segundo procedió exactamente igual, y así se ha mantenido; a estas alturas ningún responsable está preso, ni le han cancelado las concesiones mineras, mientras los deudos de los trabajadores fallecidos en Pasta de Conchos infructuosamente intentan desenterrar a la justicia que las supuestas autoridades y su protegido del consorcio minero les siguen negando.

Lo dicho y prometido por Fox y su secretario del Trabajo, el hoy diputado panista Francisco Xavier Salazar Sáenz, quedó en el aire; lo dicho y prometido por Calderón también, y lo propio ha hecho el gobernador de Coahuila, Humberto Moreira, quien no se ha quedado atrás en eso de ofrece e incumplir. Por ello, para el ejercicio de la memoria colectiva van los siguientes discursos, todos en torno al primer aniversario de Pasta de Conchos.

Germán Larrea, propietario de Industrial Minera México (uno de los individuos más acaudalados de México)

A) El secretario calderonista del (des) Trabajo, Javier Lozano Alarcón, declaró: “Industrial Minera México (de Germán Larrea y su Grupo México) tuvo la mayor parte de la responsabilidad en el accidente de Pasta de Conchos, porque estaba obligada por ley a cumplir con condiciones de seguridad… no voy a solapar a ningún servidor público que pudiera estar involucrado, ni taparé a ningún personaje por más importante que sea” (La Jornada, Patricia Muñoz). Es de suponer que si el pianista tuvo los elementos para sostener públicamente que el citado consorcio empresarial fue el de "la mayor parte de la responsabilidad", el paso inmediato no era armar un show mediático, sino presentar la denuncia legal correspondiente en contra de los empresarios y ex funcionarios públicos involucrados. También dijo que "a la Secretaría del Trabajo no le corresponde señalar culpables (aunque lo hizo), sino que será la Secretaría de la Función Pública la que determine si hubo o no responsabilidad de servidores públicos, así como las procuradurías General de la República y estatal (la de Coahuila) las que verán la situación tanto de la empresa como de los funcionarios. Mientras, la Secretaría de Economía tiene que ver el dictamen que emita el Sistema Geológico Mexicano y lo referente a la concesión del yacimiento". Ninguna de las instituciones citadas por Lozano movió un dedo.

Javier Lozano, Secretario de Trabajo y Previsión Social

B) El director general del Instituto Mexicano del Seguro Social, Juan Molinar Horcasitas (hoy despacha cómodamente en la SCT), denunció que para efectos de registro en el IMSS, Industrial Minera México no sólo subcontrató a sus trabajadores sino que a los mineros de Pasta de Conchos los dio de alta con salarios menores a los realmente cubiertos para pagar menos cuotas, en detrimento de las finanzas de la institución, con lo que se configura el fraude contra el Estado. Lo anterior, reconocido ante los integrantes de la comisión legislativa "para dar seguimiento" a las investigaciones por la explosión en Pasta de Conchos. Sin embargo, el instituto no presentó ninguna denuncia legal en contra del consorcio privado propiedad de Germán Larrea y su práctica fraudulenta.

Juan Molinar Horcasitas, Director del Instituto Mexicano del Seguro Social

C) El gobernador de Coahuila, Humberto Moreira, denunció que "desde la Presidencia de la República Vicente Fox Quesada me pidió procesar y enviar a prisión a inocentes por la tragedia en la mina Pasta de Conchos. Desde la dirigencia del Partido Acción Nacional me presionan para que no encarcele a los verdaderos responsables de la muerte de 65 trabajadores; hubo otras atrocidades, como cuando Vicente Fox, en mi cara, en Los Pinos, me pidió que hiciera cosas que no tienen moral: que inventara delitos a otras personas, que distrajéramos la atención. Soy víctima de una serie de presiones de gente del gobierno o del PAN para que no encarcelemos al ex delegado de la Secretaría de Trabajo en Coahuila, Pedro Camarillo Adame. No voy a mover un dedo para que libren el pellejo quienes están involucrados en el asesinato, en la muerte, de coahuilenses. Son responsables, hay gente que es responsable y que trabajó en la administración pasada y va a tener que ser encarcelada; lo sostengo en la cara del ex presidente Vicente Fox, le digo eso, y también las llamadas que le hice en tono suplicante para que pudiera acudir al estado. Le digo también cómo le pedí, le insistí que pudiera asignar más inspectores y no me hizo ningún caso. Yo se lo digo en su cara al ex presidente". Nada hizo.

Humberto Moreira, Gobernador de Coahuila

D) El 17 de enero de 2007 Felipe Calderón "mantuvo una entrevista informal" con Maribel Rico Montelongo, familiar de uno de los 65 mineros fallecidos en Pasta de Conchos. De acuerdo con la crónica del momento, el inquilino de Los Pinos aseguró que "la mina no será cerrada; además, se hará todo lo posible para que los cuerpos sean rescatados y tengan cristiana sepultura" (La Vanguardia de Saltillo). Dos semanas después Industrial Minera México despidió a 250 trabajadores para "cerrar transitoriamente" la mina (sin que ello implique la pérdida de la concesión federal), y la "cristiana sepultura" se mantiene en lista de espera.

Así de sencillo. Cuatro años después de la tragedia, todo sigue igual: plena impunidad.

Las rebanadas del pastel

También hay noticias amables (Lolita dixit): en plena crisis, con desempleo creciente, salarios miserables y demás gracias del sistema, los mexicanos hicieron la hombrada: pagaron tantos intereses y comisiones de usura que en 2009 la banca trasnacional que opera en el país obtuvo utilidades netas por 62 mil 58 millones de pesos, 11 por ciento más que en 2008. De ese monto, Bancomer, Banamex y Santander concentraron 71 por ciento (44 mil 200 millones) del total. -

jueves, 11 de febrero de 2010

capitalismo pa principiantes...

January 26, 2010

Which Economy is Obama Talking About?
Myths of Recovery

The State of the Union address is in danger of purveying the usual euphemisms. I expect Obama to brag that he has overseen a recovery. But can there be any such thing as a jobless recovery? What has recovered are stock market averages and Wall Street bonuses, not disposable personal income or discretionary spending after paying debt service.

Barack H. Obama, Presidente de Estados Unidos de América

There is a dream that what can be “recovered” is something so idyllic as to be mythical: a Bubble Economy enabling people to make money without actually working, by borrowing and riding the tide of asset-price inflation to make capital gains. Corporate Democrat Harold Ford Jr. writes nostalgically that Bill Clinton’s eight years in office created 22 million jobs, “balanced the budget and left his successor with a surplus. This can be done again,” if only Obama moves further to the right (which Ford calls the center, meaning the Bayhs and Republicans).

It can’t be done again. Pres. Clinton’s administration balanced the budget by “welfare reform” to cut back public spending. This would be lethal today. Meanwhile, his explosion of bank credit and the boom (rising stock prices and bonuses without any earnings) fueled the early stages of the Greenspan bubble. It was a debt-leveraged illusion. Instead of the government running budget deficits to expand domestic demand, Clinton left it to banks to extend interest-bearing credit-debt pollution that we are still struggling to clean up.

The danger is that when Obama speaks of “stabilizing the economy,” he means trying to sustain the rise in compound interest and debt. This mathematical financial dynamic is autonomous from the “real” industrial economy, overwhelming it economically. That is what makes the present economic road to debt peonage so self-defeating.

Debts that can’t be paid, won’t be. So defaults are rising. The question that Obama should be addressing is how to deal with the excess of debt above the ability to pay – and of negative equity for the one-quarter of U.S. real estate that has a higher mortgage debt than the market price is worth. If the hope is still to “borrow our way out of debt” by getting the banks to start lending again, then listeners on Wednesday will know that Obama’s second year in office will be worse for the economy than his first.

How realistic is it to expect the speech to make clear that “we can’t go home again”? Obama promised change. “We simply cannot return to business as usual,” he said on Jan. 21, introducing the “Volcker plan.” But how can there be meaningful structural change if the plan is to return to an idealized dynamic that enriched Wall Street but not the rest of the economy?

Paul Volker, Director del Consejo Presidencial para la Reconstrucción Económica

The word “recession” implies that economic trends will return to normal almost naturally.

Any dream of “recovery” in today’s debt-leveraged economy is a false hope. Yet high financial circles expect Obama to insist that the economy cannot recover without first reimbursing and enriching Wall Street. To re-inflate asset prices, Obama’s team looks to Japan’s post-1990 model. A compliant Federal Reserve is to flood the credit markets to lower interest rates to revive bank lending –- interest-bearing debt borrowed to buy real estate already in place (and stocks and bonds already issued), enabling banks to work out of their negative equity position by inflating asset prices relative to wages.

The promise is that re-inflating prices will help the “real” economy. But what will “recover” is the rising trend of consumer and homeowner debt responsible for stifling the economy with debt deflation in the first place. This end-result of the Clinton-Bush bubble economy is still being applauded as a model for recovery.

We are not really emerging from a “recession.” The word means literally a falling below a trend line. The economy cannot “recover” its past exponential growth, because it was not really normal. GDP is rising mainly for the FIRE sector – finance, insurance and real estate – not the “real economy.” Financial and corporate managers are paying themselves more for their success in paying their employees less.

This is the antithesis of recovery for Main Street. That is what makes the FIRE sector so self-destructive, and what has ended America’s great post-1945 upswing.

There are two economies – and the extractive FIRE sector dominates the “real” economy

When listening to the State of the Union speech, one should ask just which economy Obama means when he talks about recovery. Most wage earners and taxpayers will think of the “real” economy of production and consumption. But Obama believes that this “Economy #1” is dependent on that of Wall Street. His major campaign contributors and “wealth creators” in the FIRE sector – Economy #2, wrapped around the “real” Economy #1.

Economy #2 is the “balance sheet” economy of property and debt. The wealthiest 10 per cent lend out their savings to become debts owed by the bottom 90 per cent. A rising share of gains are made in extractive ways, by charging rent and interest, by financial speculation (“capital gains”), and by shifting taxes off itself onto the “real” Economy #1.

John Edwards talked about “the two economies,” but never explained what he meant operationally. Back in the 1960s when Michael Harrington wrote The Other America, the term meant affluent vs. poor America. For 19th-century novelists such as Charles Dickens and Benjamin Disraeli, it referred to property owners vs. renters. Today, it is finance vs. debtors. Any discussion of economic polarization betweens rich and poor must focus on the deepening indebtedness of most families, companies, real estate, cities and states to an emerging financial oligarchy.

Financial oligarchy is antithetical to democracy. That is what the political fight in Washington is all about today. The Corporate Democrats are trying to get democratically elected to bring about oligarchy. I hope that this is a political oxymoron, but I worry about how many people buy into the idea that “wealth creation” requires debt creation. While wealth gushes upward through the Wall Street financial siphon, trickle-down economic ideology fuels a Bubble Economy via debt-leveraged asset-price inflation.

The role of public spending – and hence budget deficits – no longer means taxing citizens to spend on improving their well-being within Economy #1. Since the 2008 financial meltdown the enormous rise in national debt has resulted from the reimbursing of Wall Street for its bad gambles on derivatives, collateralized debt obligations and credit default swaps that had little to do with the “real” economy. They could have been wiped out without bringing down the economy. That was an idle threat. A.I.G.’s swap insurance department could have collapsed (it was largely in London anyway) while keeping its normal insurance activities unscathed. But the government paid off the financial sector’s bad speculative debts by taking them onto the public balance sheet.

The economy is best viewed as the FIRE sector wrapped around the production and consumption core, extracting financial and rent charges that are not technologically or economically necessary costs.

Say’s Law of markets, taught to every economics student, states that workers and their employers use their wages and profits to buy what they produce (consumer goods and capital goods). Profits are earned by employing labor to produce goods and services to sell at a markup. (M – C – M’ to the initiated.)

The financial and property sector is wrapped around this core, siphoning off revenue from this circular flow. This FIRE sector is extractive. Its revenue takes the form of what classical economists called “economic rent,” a broad category that includes interest, monopoly super-profits (price gouging) and land rent, as well as “capital” gains. (These are mainly land-price gains and stock-market gains, not gains from industrial capital as such.) Economic rent and capital gains are income without a corresponding necessary cost of production (M – M’ to the initiated).

Banks have lent increasingly to buy up these rentier rights to extract interest, and less and less to promote industrial capital formation. Wealth creation” FIRE-style consists most easily of privatizing the public domain and erecting tollbooths to charge access fees for basic necessities such as health insurance, land sites, home ownership, the communication spectrum (cable and phone rights), patent medicine, water and electricity, and other public utilities, including the use of convenient money (credit cards), or the credit needed to get by. This kind of wealth is not what Adam Smith described in The Wealth of Nations. It is a form of overhead, not a means of production. The revenue it extracts is a zero-sum economic activity, meaning that one party’s gain (that of Wall Street usually) is another’s loss.

Debt deflation resulting from a distorted “financialized” economy

The problem that Obama faces is one that he cannot voice politically without offending his political constituency. The Bubble Economy has left families, companies, real estate and government so heavily indebted that they must use current income to pay banks and bondholders. The U.S. economy is in a debt deflation. The debt service they pay is not available for spending on goods and services. This is why sales are falling, shops are closing down and employment continues to be cut back.

Banks evidently do not believe that the debt problem can be solved. That is why they have taken the $13 trillion in bailout money and run – paying it out in bonuses, or buying other banks and foreign affiliates. They see the domestic economy as being all loaned up. The game is over. Why would they make yet more loans against real estate already in negative equity, with mortgage debt in excess of the market price that can be recovered? Banks are not writing more “equity lines of credit” against homes or making second mortgages in today’s market, so consumers cannot use rising mortgage debt to fuel their spending.

Banks also are cutting back their credit card limits. They are “earning their way out of debt,” making up for the bad gambles they have taken with depositor funds, by raising interest rates, penalties and fees, by borrowing low-interest credit from the Federal Reserve and investing it abroad – preferably in currencies rising against the dollar. This is what Japan did in the “carry trade.” It kept the yen’s exchange rate down, and it is lowering the dollar’s exchange rate today. This threatens to raise prices for imports, on which domestic consumer prices are based. So easy credit for Wall Street means a cost squeeze for consumers.

The President needs a better set of advisors. But Wall Street has obtained veto power over just who they should be. Control over the President’s ear time has been part of the financial sector’s takeover of government. Wall Street has threatened that the stock market will plunge if oligarch-friendly Fed Chairman Bernanke is not reappointed. Obama insists on keeping him on board, in the belief that what’s good for Wall Street is good for the economy at large.

Ben Bernanke, Gobernador de la Reserva Federal

But what’s good for the banks is a larger market for their credit – more debt for the families and companies that are their customers, higher fees and penalties, no truth-in-lending laws, harsher bankruptcy terms, and further deregulation and bailouts.

This is the program that Bernanke has advised Washington to follow. Wall Street hopes that he will be kept on board. Bernanke’s advice has helped bolster that of Tim Geithner at Treasury and Larry Summers as chief advisor to convince Pres. Obama that “recovery” requires more credit.

Timothy Geithner, Secretario del Tesoro

Larry Summers, Director del Consejo Nacional de Economía

Going down this road will make the debt overhead heavier, raising the cost of living and doing business. So we must beware of the President using the term “recovery” in his State of the Union speech to mean a recovery of debt and giving more money to Wall Street Jobs cannot revive without consumers having more to spend. And consumer demand (a hateful, jargon word, because only Wall Street and the Pentagon’s military-industrial complex really make demands) cannot be revived without reducing the debt burden. Bankers are refusing to write down mortgages and other debts to reflect the ability to pay. That act of economic realism would mean taking a loss on their bad debts. So they have asked the government to lend new buyers enough credit to re-inflate housing prices. This is the aim of the housing subsidy to new homebuyers. It leaves more revenue to be capitalized into higher mortgage loans to support prices for real estate fallen into negative equity.

The pretense is that this is subsidizing the middle class, but homebuyers are only the intermediaries for government credit (debt to be paid off by taxpayers) to mortgage bankers. Nearly 90 per cent of new home mortgages are being funded or guaranteed by the FHA, Fannie Mae and Freddie Mac – all providing a concealed subsidy to Wall Street.

Obama’s most dangerous belief is in the myth that the economy needs the financial sector to lead its recovery by providing credit. Every economy needs a means of payment, which is why Wall Street has been able to threaten to wreck the economy if the government does not give in to its demands. But the monetary function should not be confused with predatory lending and casino gambling, not to mention Wall Street’s use of bailout funds on lobbying efforts to spread its gospel.

Deficit reduction

It seems absurd for politicians to worry that running a deficit from health care or Social Security can cause serious economic problems, after having given away $13 trillion to Wall Street and a blank check to the Pentagon. The “stimulus package” was only about 5 per cent of this amount. But Obama has announced that he intends on Tuesday to close the barn door by proposing a bipartisan Senate Budget Commission to recommend how to limit future deficits – now that Congress is unwilling to give away any more money to Wall Street.

Republican approval would set the stage for Wednesday’s State of the Union message promising to press for “fiscal responsibility,” as if a lower deficit will help recovery. I suspect that Republicans will have little interest in joining. They see the aim as being to co-opt their criticism of Democratic spending plans. But in view of the rising and well-subsidized efforts of Harold Ford and his fellow Corporate Democrats, the actual “bipartisan” aim seems to be to provide political cover for cutting spending on labor and on social services. Obama already has sent up trial balloons about needing to address the Social Security and Medicare deficits, as if they should not be financed out of the general budget by taxpayers including the higher brackets (presently exempted from FICA paycheck withholding).

Traditionally, running deficits is supposed to help pull economies out of recession. But today, spending money on public services is deemed “bad,” because it may be “inflationary” – that is, threatening to raise wages. Talk of cutting deficits thus is class-war talk – on behalf of the FIRE sector.

The economy needs deficit spending to avoid unemployment and poverty, to increase social spending to deal with the present economic shrinkage, and to maintain their capital infrastructure. The federal government also needs to increase revenue sharing with states forced to slash their budgets in response to falling tax revenue and rising unemployment insurance.

But the deficits that the Bush-Obama administration have run are nothing like the familiar old Keynesian-style deficits to help the economy recover. Running up public debt to pay Wall Street in the hope that much of this credit will be lent out to inflate asset prices is deemed good. This belief will form the context for Wednesday’s State of the Union speech. So we are brought back to the idea of economic recovery and just what is to be recovered.

Financial lobbyists are hoping to get the government to fill the gap in domestic demand below full-employment levels by providing bank credit. When governments spend money to help increase economic activity, this does not help the banks sell more interest bearing debt. Wall Street’s golden age occurred under Bill Clinton, whose budget surplus was more than offset by an explosion of commercial bank lending.

The pro-financial mass media reiterate that deficits are inflationary and bankrupt economies. The reality is that Keynesian-style deficits raise wage levels relative to the price of property (the cost of obtaining housing, and of buying stocks and bonds to yield a retirement income). The aim of running a “Wall Street deficit” is just the reverse: It is to re-inflate property prices relative to wages.

A generation of financial “ideological engineering” has told people to welcome asset-price inflation (the Bubble Economy). People became accustomed to imagine that they were getting richer when the price of their homes rose. The problem is that real estate is worth what banks will lend – and mortgage loans are a form of debt, which needs to be repaid.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website,