Poll: bailout is a scam according 70%

Pewresearch July 19, 2010

The public sees clear winners and losers from the economic policies the government has implemented since the recession of 2008. Most Americans say these policies have helped large banks, large corporations and the wealthy, while providing little or no help for the poor, the middle class or small businesses.

Fully 74% say that government policies over the past two years have done a great deal (53%) or a fair amount (21%) to help large banks and financial institutions. Majorities also say that large corporations (70% great deal/fair amount) and wealthy people (57% great deal/fair amount) have been helped.

By contrast, 68% say government policies have helped small businesses not at all (29%) or not too much (39%); 68% also say middle-class people have received little or no help from these policies. And about the same percentage (64%) says poor people have not been helped.

The latest Pew Research/National Journal Congressional Connection Poll, conducted July 15-18 among 1,003 adults, finds partisan differences over the perceived beneficiaries of government economic policies -- with two notable exceptions. Large majorities of independents (77%), Republicans (75%) and Democrats (73%) say these policies have helped large banks and financial institutions. No more than a third in each group says government policies have done a great deal or a fair amount for the poor.

More Democrats than Republicans say government economic policies have helped the wealthy (by 22 percentage points) and large corporations (by 13 points). And more than twice as many Democrats as Republicans say government policies have benefited the middle class and small businesses.

Poor Say Policies Have Helped Wealthy, Not Them

Across income groups, more say that wealthy people have been helped by the economic policies of the last few years than say middle class or poor Americans have been aided by these policies, but this difference is most pronounced among the poor themselves. About two-thirds of those with annual family incomes of less than $30,000 (68%) say that the wealthy have benefited a great deal or a fair amount from recent economic policies; that compares with 58% of those with incomes of $30,000-74,999 and 50% of those with incomes of $75,000 or more.

At the same time, lower income people are also the least likely to say poor people have been helped by economic policies during the recession. Just 21% of those with incomes of less than $30,000 say this, compared with 37% of those with higher annual incomes.

Deficit Reduction Now Rated Higher Priority than Spending to Boost Recovery

The public now sees reducing the budget deficit as a higher priority than increasing government spending to help the economy recover. And by virtually the same margin, more Americans also place greater priority on reducing the budget deficit than on cutting taxes.

In Pew Research Center surveys over the past year, the public had been evenly divided over whether the government should reduce the budget deficit or spend more to boost the economy. Today, 51% sees deficit reduction as the higher priority while 40% say the government should spend more to help the economy recover. Similarly, 51% say that reducing the budget deficit is a higher priority than cutting taxes, while 41% sees tax cuts as the higher priority.

The poll finds independents leading the way in changing priorities for government economic policies. Currently, 53% of independents see reducing the deficit as a higher priority while 38% say spending more to boost the economy.

In February, these figures were almost reversed: 51% said the higher priority for government was to spend more to help the economy recover while 42% said it was more important to reduce the budget deficit.

Republicans also have become more supportive of reducing the budget deficit since February; 73% now say that should be the higher priority, up from 63% five months ago. Opinions among Democrats are virtually unchanged - 57% now say the government should spend more to help the economy recover while 34% say the higher priority is reducing the deficit.

However, when the choice is between deficit reduction and cutting taxes, most Democrats (57%) view reducing the budget deficit as the higher priority. Republicans are evenly divided, with 47% saying that cutting taxes is the higher priority compared with 45% who say reducing the deficit. Independents also are split; 50% rate deficit reduction as a higher priority than tax cuts, while 43% say the reverse.

No Consensus on How to Boost Economy

When asked solely about which approach would be more effective in jump-starting the economy, the public divides fairly evenly between more government spending and cutting taxes.

In this context, nearly half (47%) say it would be more effective for the government to spend more on such things as education, public works and unemployment benefits; 42% say it would be more effective to cut taxes for businesses and individuals.

While Republicans are divided over whether deficit reduction or tax cuts should take precedence, they clearly view tax cuts as more effective for the goal of stimulating the economy. Fully 61% of Republicans see tax cuts for individuals and businesses as more effective, while just 31% say that about increased government spending. By an equally wide margin, Democrats see increased government spending as more effective (67% to 23%). About half of independents (51%) view tax cuts as more effective; 38% say more spending on such things as education, public works and unemployment benefits would be more effective.

Most Say Stimulus Has Increased Deficit, Few See its Benefits

Looking back at last year's economic stimulus program, a large majority of Americans say it has increased the federal budget deficit. Far fewer say it has prevented steeper job losses or led to improvements in roads and other infrastructure in their area.

The poll finds that fully 66% say the economic stimulus has increased the federal budget deficit. By comparison, 43% say it has led to improvements in roads, bridges and other infrastructure in their area. Only about third (35%) say it helped keep unemployment from getting even worse while just 29% say it helped state and local governments avoid layoffs and budget cuts.

Republicans take highly negative views of the impact of the stimulus. Eight-in-ten (80%) say it has increased the budget deficit; 31% say it has improved infrastructure in their area, while even fewer say it helped prevent higher unemployment (18%) and state and local budget cuts (14%). But many independents and Democrats also are skeptical of the benefits of the stimulus. And majorities of both groups say it has increased the federal budget deficit (69% of independents, 55% of Democrats).

Democrats express positive views of the impact of the stimulus on roads and infrastructure in their area (56% helped), while 49% say it has kept unemployment from getting even worse and 41% say it helped state and local governments avoid layoffs and budget cuts. Fewer than half of independents see the stimulus helping infrastructure in their area (41%), unemployment (34%) and state and local governments (29%).

 View the topline and survey methodology at people-press.org.

Obama Joins UN Effort to Dictate "Acceptable Behavior" on the Internet

By Kurt Nimmo - Infowars

The United States — along with the UK, China and Russia — have agreed to work together under the globalist umbrella of the United Nations to determine “norms of accepted behavior in cyberspace,” according to Computer Weekly. France, Germany, Estonia, Belarus, Brazil, India, Israel, Italy, Qatar, South Korea, and South Africa are also involved in the effort.

Robert Knake, a cyberwarfare expert with the Council on Foreign Relations, says the signed agreement represents a significant change in U.S. posture. Participation of the U.S. demonstrates the Obama administration’s strategy of diplomatic engagement, according to Knake.

“To achieve that goal nations will share information about their cybersecurity laws, develop international standards of conduct, and help less developed countries tighten their cybersecurity. The principles have been finalized for the United Nations, but there is no indication when they will be reviewed,” reports writes Bert Knabe for Lubbock Online.

As Infowars.com has reported, the threat of cyber attacks is vastly overstated. Dire reports issued by the Defense Science Board and the Center for Strategic and International Studies "are usually richer in vivid metaphor -- with fears of 'digital Pearl Harbors' and 'cyber-Katrinas' -- than in factual foundation," writes Evgeny Morozov, a Belarus-born researcher and blogger who writes on the political effects of the internet.

Morozov notes that much of the data on the supposed cyber threat "are gathered by ultra-secretive government agencies -- which need to justify their own existence -- and cyber-security companies -- which derive commercial benefits from popular anxiety."

“Our legislature is utterly supine before the national security bureaucracy, which exaggerates cybersecurity threats and consistently uses the secrecy trump card to defy oversight,” writes Jim Harper for CATO. “Benign intentions do not control future results, and governmental surveillance of the Internet for ‘cybersecurity’ purposes may warp over time to surveillance for ideological and political purposes.”

Our nation will be even more supine before a global security bureaucracy that does not answer to our elected representatives, does not respect our national sovereignty and our Constitution and Bill of Rights.

United Nations Secretary-General Ban Ki-moon announced in 2009 that the globalist organization has moved to prevent “hate speech” on the internet. “There are those who use information technology to reinforce stereotypes, to spread misinformation and to propagate hate,” Ki-moon said during a seminar on “hate speech” held in June of 2009. “Look no further than last week’s shocking shooting at the Holocaust Memorial Museum in Washington, DC. For years, the alleged shooter was well known for spewing racist venom through the internet and elsewhere.”

The corporate media and liberal bloggers attempted to place blame for the Holocaust museum shooting on members of the patriot movement. James W. Von Brunn, the accused shooter and avowed white supremacist, “was a right-winger — a far right-winger,” David Neiwert wrote last June. “More to the point, this is precisely the same belief system that today fuels the cottage industry in conspiracy theories — promulgated by the likes of Ron Paul and Alex Jones — that the Fed is part of a massive conspiracy of ‘international [read: Jewish] bankers’ to enslave Americans and destroy the country.”

Following the release of the Department of Homeland Security’s report labeling gun owners, returning veterans, and patriot movement activists as the number one threat to national security, the corporate media launched into a concerted effort to portray “rightwing extremists” who defend the Constitution as domestic terrorists.

Obama partisans — including members of the FCC — characterize conservative talk radio as hate speech and demand it be shut down. Obama’s regulatory czar, Cass Sunstein, has argued that the government ban “conspiracy theorizing” and infiltrate “extremists who supply conspiracy theories” to disrupt the efforts of the “extremists” to propagate their theories over the internet.

The red herring of cybersecurity is now being exploited by the global elite in a cynical effort to tame and fully corporatize the internet and shut down the alternative media that has eclipsed the old dinosaur dead tree and televised corporate media.

The recent agreement at the United Nations signifies that the globalists are determined to take efforts to control and censor the internet to the next level.
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Related:The Ministry of Truth
by Philip Giraldi

The Ministry of Truth was how George Orwell described the mechanism used by government to control information in his seminal novel 1984. A recent trip to Europe has convinced me that the governments of the world have been rocked by the power of the internet and are seeking to gain control of it so that they will have a virtual monopoly on information that the public is able to access. In Italy, Germany, and Britain the anonymous internet that most Americans are still familiar with is slowly being modified. If one goes into an internet café it is now legally required in most countries in the European Union to present a government issued form of identification. When I used an internet connection at a Venice hotel, my passport was demanded as a precondition and the inner page, containing all my personal information, was scanned and a copy made for the Ministry of the Interior -- which controls the police force. The copy is retained and linked to the transaction. For home computers, the IP address of the service used is similarly recorded for identification purposes. All records of each and every internet usage, to include credit information and keystrokes that register everything that is written or sent, is accessible to the government authorities on demand, not through the action of a court or an independent authority. That means that there is de facto no right to privacy and a government bureaucrat decides what can and cannot be "reviewed" by the authorities. Currently, the records are maintained for a period of six months but there is a drive to make the retention period even longer.

The excuses being given for the increasing government intervention into the internet are essentially two: first, that the anonymity of the internet has permitted criminal behavior, fraud, pornography, and libel. Second is the security argument, that managing the internet is an integral part of the "global war on terror" in that it is used by terrorists to plan their attacks requiring governments to control those who use it. The United States government takes the latter argument one step farther, claiming that the internet itself is a vulnerable "natural asset" that could be seized or damaged by terrorists and must be protected, making the case for a massive $100 billion program of cyberwarfare. Senator Joseph Lieberman (D-CT) argues that "violent Islamist extremists" rely on the internet to communicate and recruit and he has introduced a bill in the Senate that will empower the president to "kill" the internet in case of a national emergency.

But all of the arguments for intervention are essentially themselves fraudulent and are in reality being exploited by those who favor big government and state control. The anonymity and low cost nature of the internet means that it can be used to express views that are unpopular or unconventional, which is its strength. It is sometimes used for criminal behavior because it is a mechanism, not because there is something intrinsic in it that makes it a choice of wrongdoers. Before it existed, fraud was carried out through the postal service and over the telephone. Pornography circulated freely by other means. As for the security argument, the tiny number of actual terrorists who use the internet do so because it is there and it is accessible. If it did not exist, they would find other ways to communicate, just as they did in pre-internet days. In fact, intelligence sources report that internet use by terrorists is rare because of persistent government monitoring of the websites.

The real reason for controlling the internet is to restrict access to information, something every government seeks to do. If the American Departments of Defense and Homeland Security and Senator Lieberman have their way, new cybersecurity laws will enable Obama's administration to take control of the internet in the event of a national crisis. How that national crisis might be defined would be up to the White House but there have been some precedents that suggest that the response would hardly be respectful of the Bill of Rights. Many countries already monitor and censor the internet on a regular basis, forbidding access to numerous sites that they consider to be subversive or immoral. During recent unrest, the governments of both Iran and China effectively shut down the internet by taking control of or blocking servers. Combined with switching off of cell phone transmitters, the steps proved effective in isolating dissidents. Could it happen here? Undoubtedly. Once the laws are in place a terrorist incident or something that could be plausibly described in those terms would be all that is needed to have government officials issue the order to bring the internet to a halt.

But the ability to control the internet technically is only part of the story. Laws are being passed that criminalize expressing one's views on the internet, including both "hate crime" legislation and broadly drafted laws that make it a crime to support what the government describes loosely as terrorism in any way shape or form. Regular extra-legal government intrusion in the private lives of citizens is already a reality, particularly in the so-called Western Democracies that have the necessary technology and tech-savvy manpower to tap phones and invade computers. In Europe, draconian anti-terrorism laws enable security agencies to monitor phone calls and e-mails, in many cases without any judicial oversight. In Britain, the monitoring includes access to detailed internet records that are available for inspection by no less that 653 government agencies, most of which have nothing whatsoever to do with security or intelligence, all without any judicial review. In the United States, the Pentagon recently sought an internet and news "instant response capability" which it dubbed the Office of Strategic Influence and it has also seeded a number of retired military analysts into the major news networks to provide a pro-government slant on the war news. The State Department is also in the game, tasking young officers to engage presumed radicals in debate on their websites while the growing use of national security letters means that private communications sent through the internet can be accessed by Federal law enforcement agencies. The Patriot Act created national security letter does not require judicial oversight. More than 35,000 were issued by the FBI last year and the recipient of a letter commits a felony if he or she reveals the receipt of the document. In a recent case involving an internet provider in Philadelphia, a national security letter demanded all details of internet messages sent on a certain date, to include account information on clients with social security numbers and credit card references.

The danger is real. Most Americans who are critical of the actions of their own government rely on the internet for information that is uncensored and often provocative, including sites like Campaign for Liberty. As this article was being written, a story broke reporting that Wordpress host Blogetery had been shut down by United States authorities along with all 73,000 Blogetery-hosted blogs. The company's ISP is claiming that it had to terminate Blogetery's account immediately after being ordered to do so by law enforcement officials "due to material hosted on the server." The extreme response implies a possible presumed terrorist connection, but it is important to note that no one was charged with any actual offense, revealing that the government can close down sites based only on suspicion. It is also likely only a matter of time before Obama's internet warfare teams surface either at the Defense Department or at State. Deliberately overloading and attacking the internet to damage its credibility, witness the numerous sites that have been "hacked" and have had to cease or restrict their activities. But the moves afoot to create a legal framework to completely shut the internet down and thereby control the "message" are far more dangerous. American citizens who are concerned about maintaining their few remaining liberties should sound the alarm and tell the politicians that we don't need more government abridgement of our First Amendment rights.
______
Philip M. Giraldi is a former CIA counter-terrorism specialist and military intelligence officer who served 19 years overseas in Turkey, Italy, Germany, and Spain. He was Chief of Base in Barcelona from 1989 to 1992, was designated as senior Agency officer for support at the Olympic Games, and served as official liaison to the Spanish Security and Intelligence services. He has been designated by the General Accountability Office as an expert on the impact of illegal immigration on terrorism.

Phil Giraldi is now the Francis Walsingham Fellow at The American Conservative Defense Alliance and provides security consulting for a number of Fortune 500 corporate clients. As a counter-terrorism expert, he has assisted multinational corporations in the upgrade of their security at overseas sites to help them comply with the Patriot Act. He was one of the first American civilians to travel to Afghanistan after the fall of the Taliban, was brought in for consultation by the Port Authority of the City of New York in its planning, has assisted the United Nations security organization, and has helped develop a security training program for the United States Merchant Marine. He has written op-ed pieces for the Hearst Newspaper chain, is a columnist for AntiWar.com, and a contributing editor to American Conservative magazine. His media appearances include Good Morning America, MSNBC, NPR, BBC, FOX News, Polish National Television, al-Jazeera, and 60 Minutes. Phil was awarded an MA and PhD from the University of London in European, and speaks Spanish, Italian, German, and Turkish.

Copyright © 2010 Campaign for Liberty 

Oops! British government goes into super spin mode after novice deputy prime minister tells parliament and entire nation on live TV: The invasion of Iraq was illegal

From Signs of the Times

Coalition in confusion as deputy prime minister pronounces invasion 'illegal' at dispatch box

Nick Clegg was tonight forced to clarify his position on the Iraq war after he stood up at the dispatch box of the House of Commons and pronounced the invasion illegal.

The deputy prime minister insisted he was speaking in a personal capacity, as a leading international lawyer warned that the statement by a government minister in such a formal setting could increase the chances of charges against Britain in international courts.

Philippe Sands, professor of law at University College London, said: "A public statement by a government minister in parliament as to the legal situation would be a statement that an international court would be interested in, in forming a view as to whether or not the war was lawful."

Read all


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Related:  Gordon Brown Admits That Hussein Was Overthrown for the New World Order

AU troops harming Somali civilians

NAIROBI, Kenya – African Union peacekeepers are indiscriminately shelling residential areas of Somalia's capital, according to internal AU reports reviewed by The Associated Press.


The evaluation was made months before Somali militants claimed they carried out twin bombings that killed 76 people in Uganda last week — attacks the insurgents said were to avenge civilian deaths caused by AU soldiers.


The series of reports, stamped for "Internal Use Only" and issued from April to June, said that if indiscriminate shelling continues, the AU mission will lose the support of the Somali people.


Civilians have suffered through nearly two decades of violent chaos in the Somali capital, Mogadishu, since the country's government was overthrown in 1991. Al-Qaida-linked al-Shabab militants now control large portions of the capital, and much of the country's southern and central regions.


The AU force, known as AMISOM, has long been criticized by human rights groups for civilian deaths in Somalia, and the internal reports seen by AP show the mission itself is aware of the problem.


"We warned Uganda not to deploy troops to Somalia; they ignored us," said Sheik Ali Mohamud Rage, al-Shabab's spokesman. "We warned them to stop massacring our people, and they ignored that. The explosions in Kampala were only a minor message to them. ... We will target them everywhere if Uganda does not withdraw from our land."




Read more

Personal Gold purchases recorded after 2012 - (Better buy now)

This is undoubtedly the first step of a(nother) gold confiscation/taxation move:


Starting Jan. 1, 2012, Form 1099s will become a means of reporting to the Internal Revenue Service the purchases of all goods and services by small businesses and self-employed people that exceed $600 during a calendar year. Precious metals such as coins and bullion fall into this category and coin dealers have been among those most rankled by the change.


This provision, intended to mine what the IRS deems a vast reservoir of uncollected income tax, was included in the health care legislation ostensibly as a way to pay for it. The tax code tweak is expected to raise $17 billion over the next 10 years, according to the Joint Committee on Taxation. 


Read all here


My humble advice is to buy physical gold now and keep it stored in Switzerland.

Pwning the enemy: China is doing a smart move again

By Sheridan Prasso, contributing editor July 21, 2010

FORTUNE -- China's great outward march of investing into the United States is turning into a mad dash. Chinese investments into the U.S. rose 360% in the first half of this year compared to last year, according to Chinese government figures released Tuesday.

But not everyone -- namely U.S. steelmakers who are trying to block Chinese investments in the name of "national security" concerns -- is being so welcoming, holding up at least one major deal announced in May.

The Ministry of Commerce in Beijing has not yet released actual figures except to say that the total of its global overseas investments had reached $55.2 billion by the end of June, compared to $43.3 billion for the entirety of 2009. Last year, Chinese companies announced new direct investments in the U.S. of close to $5 billion -- up from an average of $500 million a year previously, according to economic consultancy the Rhodium Group.

U.S. state governments such as South Carolina and Texas have been working hard to lure this Chinese money, which creates factories and jobs for out-of-work Americans particularly in states hard hit by recession. (See "American Made ... Chinese Owned" in the May edition of Fortune) The new American Yuncheng Gravure Cylinder in Spartanburg, S.C., which was featured in the article, announced that it began operations on July 1.

The latest beneficiary of China's outward investment push is a small Missouri town called Moberly, with just 14,000 people. This Saturday, Mamtek International -- a Chinese mainland-invested company based in Hong Kong -- plans to break ground on a state-of-the-art factory making sucralose, a no-calorie sugar substitute used in sodas and baked goods. The plant is expected to infuse $46 million into the local economy, create 312 jobs by the end of 2011 and double those employment figures over the longer term.

"These jobs will be a significant boost to Missouri's economy and our manufacturing sector, and they're another positive sign that our economy is beginning to move forward," Missouri Governor Jay Nixon said in a statement. From the first site visit in March to the signing of the agreement took just 73 days, an unheard-of speed, according to the Midwest U.S.-China Association which facilitated the deal. Local officials say they expect another Chinese investment soon.

Tepid response to the Chinese

Yet it isn't easy sailing for several other would-be Chinese investors into the U.S. China's fourth-largest steel producer, Angang Steel Co., said in May that it wanted to spend $175 million to buy just a 20% stake in a rebar plant being built by a U.S. company, Steel Development Co., in Amory, Mississippi. The new factory would employ 100 Americans and produce 200,000 tons of rebar a year. However on July 2, a group of 50 U.S. lawmakers called for an investigation over whether the tiny Chinese stake would threaten U.S. national security. The investigation was prompted by the U.S. Steel Manufacturers Association, which includes Nucor Corp (NUE,Fortune 500). and Steel Dynamics (STLD) as members.

Steel manufacturers were behind the U.S. government's imposition of import duties of up to 99% on steel pipe imports from China earlier this year -- a slap which in part helped convince another Chinese company, Tianjin Pipe Group, to begin building a $1 billion seamless pipe factory creating jobs for 600 Texans near Corpus Christi. Ground-breaking is planned for fall.

AES Corp., a wind-energy concern based in Arlington, Va., also had its potential $571 million investment for a 35% stake in its wind business from China's sovereign-wealth fund shelved. The bid expired June 30 after Congress was unable to conclude cap-and-trade emissions legislation. The company said talks could resume as U.S. policy becomes clearer.

China, for its part, called the Congressional inquiry and hold-up of Angang's investment a blatant act of protectionism. "Most U.S. politicians hope China can invest in the U.S. to create jobs, and the move by a small group of politicians to investigate and review the deal in the name of 'national security' is inappropriate," Yao Jian, a spokesman for the Chinese Ministry of Commerce told a news conference on Tuesday while releasing the new investment figures.

He cautioned that such U.S. protectionism would dampen Chinese enthusiasm for further investments in the United States. The Chinese Ministry of Industry and Information Technology has urged Chinese steel mills to make overseas investments in order to circumvent U.S. trade barriers. China's Iron and Steel Association says steel exports fell almost 60% in 2009 as a result of the global financial crisis, and that recovery is being hampered by rising protectionism in Europe and the United States -- to the detriment of U.S. job creation that otherwise would result.

Sheridan Prasso is a long-time contributing editor at Fortune and an Associate Fellow at the Asia Society.
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Related:  China should cut US Treasury holdings: economist 
More: Doug Casey: China Won't Save Us - July 21, 2010

More:  Dollar Hegemony and the Rise of China

July 12, 2010

Hudson to Premier Wen Jaibao, March 15, 2010

Dear Premier Wen Jiabao,

I write this letter to counteract some of the solutions that Western politicians are recommending for China to cope with its buildup of excess foreign-exchange reserves. Raising the renminbi’s exchange rate against the dollar will not cure the China-US payments imbalance. The dollar glut will continue, and so will the currency fluctuation among the dollar, euro and sterling, leaving no stable store of value. The cause of this instability is that each of these three currency areas has grown top-heavy with by debts in excess of the ability to pay.

What then should China should it do with its buildup of excess reserves, if not recycle its inflows into their bonds? Four possibilities have been suggested: (1) to revalue the renminbi, (2) to flood China’s economy with credit (as Japan did after the Plaza Accord of 1985), (3) to buy foreign resources and assets, and (4) to use excess dollars to buy back foreign investments in China, given US reluctance to permit Chinese investment in America’s own most promising economic sectors.

I explain below why China’s best course is to avoid accumulating further foreign exchange reserves. The most workable solution is to use its official reserves to buy back US and other foreign investments in China’s financial system and other key sectors. This policy will seem more natural as a response to an escalation of US protectionist moves to block Chinese imports or block China’s sovereign wealth funds from buying key US assets.


China’s excess reserves will impose a foreign-exchange loss (as valued in renminbi)
Every nation needs foreign currency reserves to ward off currency raids, as the Asia Crisis showed in 1997. The usual kind of raid forces currencies down. Speculators see a central bank with large foreign currency holdings, and seek to empty them out by borrowing even larger sums, selling the target currency short to drive down its price. This is the tactic that George Soros pioneered against the British pound when he broke the Bank of England.

Malaysia’s counter-tactic was not to let speculators cover their bets by buying the target currency. Its Malaysia’s success in resisting that crisis showed that currency controls prevent speculators from “cashing out” on their exchange-rate bets, blocking their attempt to drive down the currency’s value.

China’s case is the opposite. Speculators are trying to force up the renminbi’s exchange rate. Foreign inflows into China’s banks – especially those owned by US, British or other foreign companies – is flooding China with foreign currency. Its central bank finds itself obliged either to recycle this inflow back abroad, or to let the renminbi rise – and ultimately take a loss (as measured in yuan) when its currency rises against its holdings in dollars, sterling and euros. Speculators and other foreigners holding Chinese assets will get a free currency ride upward.

The effect within China’s economy will be to load it down with debt, while obliging it to buy foreign securities denominated in dollars that are falling in price. So the question is, how can China best cope with the foreign exchange flowing into its economy?

China’s major response has been to invest in the mineral resources and other imports it will need to sustain its long-term growth. But this option is limited by foreign protectionism against overseas investment in minerals and agricultural land, and by speculators from foreign countries using their own free credit to buy up these resources. So excess foreign exchange is continuing to build up.

Traditionally, central banks used their payments surpluses to buy gold as “money of the world.” Gold has the advantage of serving as a store of value, enabling central banks (in principle) to avoid taking a loss on their dollar holdings. Settling payments deficits in gold also has the global advantage of limiting the ability of other countries to run chronic payments deficits – especially war spending throughout history. This is why US diplomats oppose a return to gold.

In the 1960s foreign governments asked the US Treasury to provide a gold guarantee. The excess dollars thrown off by America’s overseas military spending in Southeast Asia and Europe ended up in the central banks of France (which dominated banking in Indo-China), Germany (as exporter and host to the major European military base), and Japan (for rest and recreation). France and Germany cashed in these dollars for gold, whose price came under pressure as US monetary gold stocks were depleted. To deter the central banks of France (under General de Gaulle), Germany and other countries from cashing in their dollars for gold, the U.S. Treasury gave a gold guarantee so that if the dollar lost value, these central banks would not lose.

Today, the United States is unlikely to give a gold guarantee, or to expect Congress to agree to such an arrangement. (Often in the past, US presidents and the Executive Branch have made agreements on foreign trade and finance, which Congress has refused to confirm.) It could guarantee China’s official dollar holdings vis-à-vis a basket or whatever the Government of China preferred to hold its reserves, from euros to a new post-Yekaterinburg currency mix. But no currency today is stable. All the major Western currencies are buckling under the burden of unpayably large debts. The US Treasury owes $4 trillion to foreign central banks, but there is no foreseeable way in which it can make good this foreign debt, given its chronic structural deficit of foreign military spending, import dependency and capital outflows. That is why so many countries are treating the dollar like a “hot potato” and trying to avoid holding them. And holding euros or British sterling does not provide a better alternative.

Most central banks today hold down their exchange rates by recycling their dollar inflows to buy US Treasury IOUs. This recycling enables the United States to finance its overseas military spending and also its domestic budget deficit (largely military in character) since the 1950s. So Europe and Asia have used their foreign exchange earnings to finance a unipolar US buildup of military bases to surround them.

This situation is inherently unstable, and hence self-terminating. The era is ending where international reserves are based on the unpayably high debts of any single government, especially when these debts are run up for military purposes. Certainly the US dollar cannot continue to fill this role, given the chronic US payments deficit. For most years since 1951, US overseas military spending (mainly in Asia) has accounted for the largest part of this deficit. And increasingly, the US trade balance has fallen into deficit (except for agriculture, entertainment and military arms). Most recently, capital outflows have accelerated from the United States, especially to China and Third World countries. US money managers have concluded that the US and other Western economies are entering a period of debt-burdened, permanently slower growth. So they are looking to China, hoping to obtain its surpluses for themselves by buying out its banking and industry.

This relationship is too one-sided to continue for long. The question is, how can it best be resolved? Any solution will involve China’s avoiding further accumulation of foreign exchange as long as these take the form of “free loans” back to the US and European governments.


China’s exchange rate vis-à-vis the dollar
American China bashers blame China for being so strong. They urge it to raise the renminbi’s exchange rate to be less competitive. And indeed, over the past three months China’s currency has risen by more than 10% against the euro and sterling as one euro-using government after another is facing insolvency.

The dollar’s recent strength does not reflect intrinsic factors, but merely the fact that the euro and sterling are even more highly debt leveraged. The main problem areas to date have been Greece, Ireland, Spain, Italy and Portugal, but much larger problems are soon to come from the Baltics, Hungary and other post-Soviet economies. For a decade, they financed their structural trade deficits by borrowing in foreign currency to fuel a real estate bubble. This foreign-currency inflow (from Austrian banks to Hungary and Romania, from Swedish banks to the Baltic States) inflated prices for their housing and office buildings. But now that their real estate bubbles have burst, there is no foreign lending to support their currencies. As their real estate sinks into negative equity, the banking systems of Sweden and Austria face widespread defaults.

The EU and IMF have pressured post-Soviet governments to borrow to bail out EU banks. This shifts the bankruptcy from the private sector to the public sector (“taxpayers”), imposing a severe economic depression on these countries. Governments are slashing spending on education, health care and infrastructure so deeply as to cause personal and business mortgage defaults, emigration, and even shortening life spans.

This shrinkage is the end-result of the neoliberal Washington Consensus imposed on these countries since 1991, aggravated by the global financial bubble since 2000. It is an object lesson for what China needs to avoid.

The United States for its part is manipulating its currency to keep the dollar low, by flooding its economy with low-interest credit. This manipulation runs counter to normal practice over the past five centuries. Any economy running a balance-of-payments deficit traditional has raised interest rates to attract foreign loans and slow domestic spending. But the US Federal Reserve is doing just the opposite. Low interest rates to keep the real estate bubble fro bursting further have the effect of aggravating rather than curing the trade deficit and capital outflow.

Yet more dollars are ending up in the hands of foreign central banks. Foreign economies are expected to recycle these inflows into yet more purchases of US Treasury securities, saving US taxpayers and investors from having to finance this deficit themselves.


Revaluing the renminbi would exacerbate China’s financial problem, not stabilize its trade
US economic diplomats argue that increasing the renminbi’s exchange rate will help restore balance to China’s balance of payments with the United States. But the US payments deficit is structural, and hence not responsive to price changes. As noted above, a major payments outflow is overseas military spending. Another growing outflow is on capital account, to buy up foreign companies, stocks and bonds. US investors themselves are abandoning the US economy, looking mainly to China for higher yields – and for a foreign-exchange windfall gain.

The US strategy is to buy up Chinese assets yielding 20% or more annually, while China recycles these dollars to Washington and Wall Street at interest rates of only about 1% (for Treasury securities) and absorbs losses in many private-sector investments. (This is the strategy that “worked” with Japan after 1985.) Revaluing the renminbi would provide a windfall for US hedge funds and speculators. Anticipations of revaluation already are spurring higher capital outflows to China.

A higher exchange rate for the renminbi also would result in even more dollar outflows from the United States to Asia on trade account, by obliging American consumers to pay a higher dollar price. Contrary to what most “free trade” assumptions, the fact is that most trade is not responsive to small shifts in currency values. (Economic jargon calls this “price-inelastic.”)

This became clear in the 1980s when a rising exchange rate for Japan’s yen did not reduce that nation’s trade balance. US consumers simply paid more. This is why, despite the recent 21% appreciation in the renminbi, China’s trade balance increased rather than shrank. Likewise, Japan’s yen has soared since autumn 2009, yet it is still accumulating reserves.

Even if China revalues the renminbi, its export prices will not rise proportionally. This is because imports of raw materials, much machinery and other components of most exports have a common world price (typically denominated in dollars). So a higher renminbi will lower the dollar price of these imports.

About half the price received for exports covers the price and markup spent on these imports with a common world price. So if China’s currency rises by 10% against the dollar, the price of imports embodied in these exports (as valued in renminbi) will fall by 10%. Half the export price will be unaffected, so overall export prices might rise by 5%.

Given the fact that trade patterns are deeply entrenched, a quantum leap in revaluing the renminbi would be needed to reduce China’s trade surplus. Small revaluations would not “solve” the problem that US diplomats are demanding. Unless revaluation is enormous – in the neighborhood of 40% – raising the exchange rate thus will tend to increase rather than reduce China’s trade surplus. The moral is that if the aim is really to change export patterns, there is no point in devaluing except to excess (that is, about 40%). This was the principle that US President Franklin Roosevelt followed in 1933.

Creating more domestic credit at low interest rates would destabilize China
The follow-up to a renminbi revaluation is likely to be what it was in the Plaza and Louvre accords that US diplomats forced on Japan after 1985. Payments-surplus economies are told to restore “equilibrium” by easing credit to spur a balance-of-payments outflow.

The effect is to create a financial bubble, derailing industrial competitiveness and leaving the banking system in a debt-ridden shambles. Japan was willing to flood its economy with enough credit to destabilize its industry and real estate markets with debt that has remained for the twenty years since its bubble burst in 1990. China should avoid this kind of policy at all costs. To avoid the debt overhead now stifling the Western economies, it should minimize debt leveraging and limit the banking system’s ability to create credit to buy assets already in place. Foreign-owned banks in particular need to be restricted from aiding parent-country currency speculation and related financial extraction of revenue from China’s economy.


Balancing China’s international payments by buying foreign resources and assets
China already is seeking to buy mineral, fuel and agricultural resources abroad to supply the inputs that it needs for its own growth. But these efforts still leave substantial foreign exchange surpluses. Most countries have used these surpluses to buy up key sectors of foreign economies. This is what Britain, the United States and France have done for more than a century.

When the US economy runs payments surpluses with foreign countries, it insists that they pay for their foreign debts and ongoing trade deficits by opening up their markets and “restore balance” by selling their key public infrastructure, industries, mineral rights and commanding heights to US investors. But the US Government has blocked foreign countries from doing the same with the United States. This asymmetry has been a major factor causing the inequality between high US private-sector returns and low foreign official returns on their dollar holdings.

The refusal of the US Government to behave symmetrically by not letting China buy key US companies with the dollar inflows that enter China to buy its own companies, above all its financial and banking sector, is largely responsible for the asymmetrical situation noted above, in which US investors earn 20% in China, but China earns only 1% in the US.
Buying back foreign investments in China
The wave of the future is to avoid a buildup of foreign exchange at all. The main way to do this is an option that European governments have discussed: to use their excess dollars to buy out US investment holdings in their countries, at book value. In effect, China would say to the United States:

“We have let you invest in out own factories and even our banks, and we have let you participate in our key sectors even where these have special domestic privileges. Your economists advised us that this was the most efficient way to run an economy. But it is not advice that the United States itself has followed. You are not letting us use the dollars that you invest here – and the dollars that China earns by exporting the products of its labor – to buy corresponding investments in your country.”

“It is of course the sovereign right of every nation to determine who shall own and control its industry, bank credit-creating privileges and other resources. We accept this principle of international law. So by the same token, we are using the surplus dollars to buy out US and other foreign investments in China. We are willing to do this according to international law, and pay the book value that your own accountants report their investments in China as being worth.”

“This will stabilize international exchange rates by restoring balance to international payments. It is especially natural inasmuch as we understand that the US consumer-goods market is shrinking, obliging us to turn more to our own domestic market.”

Obviously, US holders of investments in China would complain that their holdings are worth more than the book value they have declared. Indeed, this is a major reason why current investors in China are trying to prevent the US Government from engaging in more anti-Chinese protectionist policies. But in the event that the governments rejects their advice and “goes it alone” by taking anti-China measures, China would be in the position of responding to a US initiative rather than acting independently. And it certainly would have the support of other countries in a similar position vis-à-vis US attempts at politicizing foreign investment.

This problem came up in the 1960s and ‘70s, when the US Government directed foreign affiliates of US firms to adopt US Cold War policies to avoid trading with China, the Soviet Union and other targeted economies. Foreign governments pointed out that US directions as to how affiliates incorporated in foreign countries could act, as these were subject to their host-country laws, not those of the United States.

This issue is being revived today with regard to sanctions against Iran and other countries. International law has long backed host countries regarding trade and investment policy, credit policy and so forth. I expect this to become a major factor in foreign repurchases of US investments abroad – in Europe and other Asian countries as well as China.

Perhaps a commission will be necessary to debate a fair price for these future buyouts. But such cases usually take a considerable time to resolve. There are implications of this policy that I would prefer to discuss orally at an appropriate point in time rather than elaborate further at present.
Summary: The inequity of the dollar deficit
China, the rest of Asia and Russia have been financing the US overseas dollar spending to pay for America’s military encirclement of the Eastern Hemisphere and for US investors to buy out the crown jewels of Asian industry, financial institutions and public infrastructure. This situation is asymmetrical not only economically, but also politically. In 1823, America’s Monroe Doctrine told Europe to keep out of the Western Hemisphere, ending European colonialism and political hegemony in Latin America. The United States replaced the major European powers as investor and political and military influence.

Today, many people in the United States, Canada and Europe wish to see global disarmament in a multi-polar world rather than a unipolar world. They believe that no country should get a free ride or dominate the world militarily. That would not be a free market. In the end, international economic, political and military relations tend to settle at symmetrical common rules for all parties. A generation ago, Harvard economist Albert Hirschman called for U.S. disinvestment in Latin America and third world countries, on grounds of U.S. economic interest itself. Today, the US economy is suffering from chronic domestic budget deficits that are largely military in character, and chronic payments deficits. Scaling back military spending would free resources for use in its own economy, while enabling foreign economies to wind down their own military budgets.

This logic is endorsed by many US citizens and economists. It can be promoted by a system in which no national economy remains in a monetary system based on the military spending of a military nation in chronic deficit and rising debt beyond its foreseeable ability to pay. This kind of free ride characterized the empires of times past, but the present century promises a more fair, equitable and (one hopes) less militarized world.

Michael Hudson
Distinguished Professor of Economics, University of Missouri (Kansas City)Honorary Professor, Huazhong University of Science and Technology (Wuhan) 

NATO Chief Disavows 2014 Drawdown Date, Insists War to Continue Indefinitely

From Jason Ditz, AntiWar.com, Jul 21 2010


The replacement of the Jul 2011 drawdown date with a more speculative 2014 date is scarcely completed, and already that date too is being disavowed by NATO Sec-Gen Rasmussen. 


According to Rasmussen, NATO troops will remain in the nation and will continue their nearly nine year war “indefinitely,” pledging that the troops would only leave once it became impossible for the Taliban to take over in Afghanistan. It is perhaps inevitable that those officials with dreams of some ill-defined “victory” in Afghanistan would bristle at any drawdown date at this point, as the repeated escalations of the war have not brought victory any closer and have instead only made matters worse, with record death tolls coming virtually every month. Rasmussen, for his part, has predicted even more casualties in the months ahead, but claims that the large number of NATO troops being killed just proves how desperate the Taliban is getting. Armed with this assumption, he will no doubt continue to have such reasons for optimism as the war continues to worsen.