Introduction

            All the idols of capitalism over the past three decades crashed.  The assumptions and presumptions, paradigm and prognosis of indefinite progress under liberal free market capitalism have been tested and have failed.  We are living the end of an entire epoch:  Experts everywhere witness the collapse of the US and world financial system, the absence of credit for trade and the lack of financing for investment.  A world depression, in which upward of a quarter of the world's labor force will be unemployed, is looming.  The biggest decline in trade in recent world history - down 40% year to year - defines the future.  The immanent bankruptcies of the biggest manufacturing companies in the capitalist world haunt Western political leaders.  The ‘market' as a mechanism for allocating resources and the government of the US as the ‘leader' of the global economy have been discredited.  (Financial Times, March 9, 2009)  All the assumptions about ‘self-stabilizing markets' are demonstrably false and outmoded.  The rejection of public intervention in the market and the advocacy of supply-side economics have been discredited even in the eyes of their practitioners.  Even official circles recognize that ‘inequality of income' contributed to the onset of the economic crash and should be corrected.  Planning, public ownership, nationalization are on the agenda while socialist alternatives have become almost respectable. 

            With the onset of the depression, all the shibboleths of the past decade are discarded:  As export-oriented growth strategies fail, import substitution policies emerge.  As the world economy ‘de-globalizes' and capital is ‘repatriated' to save near bankrupt head offices - national ownership is proposed.  As trillions of dollars/Euros/yen in assets are destroyed and devalued, massive layoffs extend unemployment everywhere.  Fear, anxiety and uncertainty stalk the offices of state, financial directorships, the office suites the factories, and the streets...

            We enter a time of upheaval, when the foundations of the world political and economic order are deeply fractured, to the point that no one can imagine any restoration of the political-economic order of the recent past.  The future promises economic chaos, political upheavals and mass impoverishment.  Once again, the specter of socialism hovers over the ruins of the former giants of finance.  As free market capital collapses, its ideological advocates jump ship, abandon their line and verse of the virtues of the market and sing a new chorus: the State as Savior of the System - a dubious proposition, whose only outcome will be to prolong the pillage of the public treasury and postpone the death agony of capitalism as we have known it.

Theory of Capital Crisis: The Demise of the Economic Expert

            The failed economic policies of political and economic leaders are rooted in the operation of markets - capitalism.  To avoid a critique of the capitalist system, writers are blaming the leaders and financial experts for their incompetence, ‘greed' and individual defects.

            Psychobabble has replaced reasoned analysis of structures, material forces and objective reality, which drive, motivate and provide incentives to investors, policy makers and bankers.  When capitalist economies collapse, the gods drive the politicians and editorial columnists crazy, depriving them of any capacity to reason about objective processes and sending them into the wilderness of subjective speculation.

            Instead of examining the opportunity structures created by enormous surplus capital and the real existing profit margins, which in drive capitalists into financial activity, we are told it was ‘the failure of leadership'.  Instead of examining the power and influence of the capitalist class over the state, in particular the selection of economic policy-makers and regulators who would maximize their profits, we are told there was a ‘lack of understanding' or ‘willful ignorance of what markets need'.  Instead of looking at the real social classes and class relations - specifically the historically existing capitalist classes operating in real existing markets - the psycho-babblers posit an abstract ‘market' populated by imaginary (‘rational') capitalists.  Instead of examining how rising profits, expanding markets, cheap credit, docile labor, and control over state policies and budgets, create ‘investor confidence', and, in their absence, destroy ‘confidence', the psychobabblers claim that the ‘loss of confidence' is a cause for the economic debacle.  The objective problem of loss of specific conditions, which produce profits, as leading to the crisis, is turned into a ‘perception' of this loss.

            Confidence, faith, hope, trust in capitalist economies derive from economic relations and structures which produce profits.  These psychological states are derivative from successful outcomes:  Economic transactions, investments and market shares that raise value, multiply present and future gains.  When investments go sour, firms lose money, enterprises go bankrupt, and those prejudiced ‘lose confidence' in the owners and brokers.  When entire economic sectors severely prejudice the entire class of investors, depositors and borrowers, there is a loss of ‘systemic confidence.' 

            Psychobabble is the last resort of capitalist ideologues, academics, experts and financial page editorialists.  Unwilling to face the breakdown of real existing capitalist markets, they write and resort to vague utopias such as ‘proper markets' distorted by ‘certain mindsets'.  In other words, to save their failed ideology based on capitalist markets, they invent a moral ideal the ‘proper capitalist mind and market', divorced from real behavior, economic imperatives and contradictions embedded in class warfare.

            The inadequate and shoddy economic arguments, which pervade the writing of capitalist ideologues parallels the bankruptcy of the social system in which they are embedded.  The intellectual and moral failures of the capitalist class and their political followers are not personal defects; they reflect the economic failure of the capitalist market.

The crash of the US financial system is symptomatic of a deeper and more profound collapse of the capitalist system that has its roots in the dynamic development of capitalism in the previous three decades.  In its broadest terms, the current world depression results from the classic formulation outlined by Karl Marx over 150 years ago:  the contradiction between the development of the forces and relations of production. 

Contrary to the theorists who argue that ‘finance' and ‘post-industrial' capitalism have ‘destroyed' or de-industrialized the world economy and put in its place a kind of "casino" or speculative capital, in fact, we have witnessed the most spectacular long-term growth of industrial capital employing more industrial and salaried workers than ever in history.  Driven by rising rates of profit, large scale and long-term investments have been the motor force for the penetration by industrial and related capital of the most remote underdeveloped regions of the world.  New and old capitalist countries spawned enormous economic empires, breaking down political and cultural barriers to incorporating and exploiting billions of new and old workers in a relentless process.  As competition from the newly industrialized countries intensified, and as the rising mass of profits exceeded the capacity to reinvest them most profitably in the older capitalist centers, masses of capital migrated to Asia, Latin America, Eastern Europe, and to a lesser degree, into the Middle East, Southern Africa.

            Huge surplus profits spilled over into services, including finance, real estate, insurance, large-scale real estate and urban lands.

            The dynamic growth of capitalism's technological innovations found expression in greater social and political power - dwarfing the organization of labor, limiting its bargaining power and multiplying its profits.  With the growth of world markets, workers were seen merely as ‘costs of production' not as final consumers.  Wages stagnated; social benefits were limited, curtailed or shifted onto workers.  Under conditions of dynamic capitalist growth, the state and state policy became their absolute instrument: restrictions, controls, regulation were weakened.  What was dubbed "neo-liberalism" opened new areas for investment of surplus profits:  public enterprises, land, resources and banks were privatized.

            As competition intensified, as new industrial powers emerged in Asia, US capital increasingly invested in financial activity.  Within the financial circuits it elaborated a whole series of financial instruments, which drew on the growing wealth and profits from the productive sectors.

            US capital did not ‘de-industrialize' - it relocated to China, Korea and other centers of growth, not because of "falling profits" but because of surplus profits and greater profits overseas.

            Capital's opening in China provided hundreds of millions of workers with jobs subject to the most brutal exploitation at subsistence wages, no social benefits, little or no organized social power.  A new class of Asian capitalist collaborators, nurtured and facilitated by Asian state capitalism, increased the enormous volume of profits.  Rates of investments reached dizzying proportions, given the vast inequalities between income/property owning class and wageworkers.  Huge surpluses accrued but internal demand was sharply constrained.  Exports, export growth and overseas consumers became the driving force of the Asian economies.  US and European manufacturers invested in Asia to export back to their home markets - shifting the structure of internal capital toward commerce and finance.  Diminished wages paid to the workers led to a vast expansion in credit.  Financial activity grew in proportion to the entrance of commodities from the dynamic, newly industrialized countries.  Industrial profits were re-invested in financial services.  Profits and liquidity grew in proportion to the relative decline in real value generated by the shift from industrial to financial/commercial capital.

            Super profits from world production, trade, finances and the recycling of overseas earnings back to the US through both state and private financial circuits created enormous liquidity.  It was far beyond the historical capacity of the US and European economies to absorb such profits in productive sectors.

            The dynamic and voracious exploitation of the huge surplus labor forces in China, India, and elsewhere and the absolute pillage and transfer of hundreds of billions from ex-communist Russia and ‘neo-liberalized' Latin America filled the coffers of new and old financial institutions.

            Over-exploitation of labor in Asia, and the over-accumulation of financial liquidity in the US led to the magnification of the paper economy and what liberal economist later called "global disequilibrium" between savers/industrial investors/ exporters (in Asia) and consumers/financiers/importers(in the US).  Huge trade surpluses in the East were papered over by the purchase of US T-notes.  The US economy was precariously backed by an increasingly inflated paper economy.

  The expansion of the financial sector resulted from the high rates of return, taking advantage of the ‘liberalized' economy imposed by the power of diversified investment capital in previous decades.  The internationalization of capital, its dynamic growth and the enormous growth of trade outran the stagnant wages, declining social payments, the huge surplus labor force.  Temporarily, capital sought to bolster its profits via inflated real estate based on expanded credit, highly leveraged debt and outright massive fraudulent ‘financial instruments' (invisible assets without value).  The collapse of the paper economy exposed the overdeveloped financial system and forced its demise.  The loss of finance, credit and markets, reverberated to all the export-oriented industrial manufacturing powers.  The lack of social consumption, the weakness of the internal market and the huge inequalities denied the industrial countries any compensatory markets to stabilize or limit their fall into recession and depression.  The dynamic growth of the productive forces based on the over-exploitation of labor, led to the overdevelopment of the financial circuits, which set in motion the process of ‘feeding off' industry and subordinating and undermining the accumulation process to highly speculative capital.

            Cheap labor, the source of profits, investment, trade and export growth on a world scale, could no longer sustain both the pillage by finance capital and provide a market for the dynamic industrial sector.  What was erroneously dubbed a financial crisis or even more narrowly a "mortgage" or housing crisis, was merely the "trigger" for the collapse of the overdeveloped financial sector.  The financial sector, which grew out of the dynamic expansion of ‘productive' capitalism, later ‘rebounded' against it.  The historic links and global ties between industry and financial capital led inevitably to a systemic capitalist crisis, embedded in the contradiction between impoverished labor and concentrated capital.  The current world depression is a product of the ‘over-accumulation' process of the capitalist system in which the crash of the financial system was the ‘detonator' but not the structural determinant.  This is demonstrated by the fact that industrial Japan and Germany experienced a bigger fall in exports, investments and growth than ‘financial' US and England.

The capitalist system in crisis destroys capital in order to ‘purge itself' of the least efficient, least competitive and most indebted enterprises and sectors, in order to re-concentrate capital and reconstruct the powers of accumulation - political conditions permitting.  The re-composition of capital grows out of the pillage of state resources - so-called bailouts and other massive transfers from the public treasury (read ‘taxpayers'), which results from the savage reduction of social transfers (read ‘public services') and the cheapening of labor through firings, massive unemployment, wage, pension and health reductions and the general reduction of living standards in order to increase the rate of profit.

The World Depression:  Class Analysis

The aggregate economic indicators of the rise and fall of the world capitalist system are of limited value in understanding the causes, trajectory and impact of the world depression.  At best, they describe the economic carnage; at worst, they obfuscate the leading (ruling) social classes, with their complex networks and transformations, which directed the expansion and economic collapse and the wage and salaried (working) classes, which produced the wealth to fuel the expansive phase and now pay the cost of the economic collapse.

It is a well-known truism that those who caused the crisis are also the greatest beneficiaries of government largesse.  The crude and simple everyday observations that the ruling class ‘made' the crisis and the working class ‘pays' the cost, at a minimum, is a recognition of the utility of class analyses in deciphering the social reality behind the aggregate economic data.  Following the recession of the early 1970s, the Western industrial capitalist class secured financing to launch a period of extensive and deep growth covering the entire globe.  German, Japanese and Southeast Asian capitalists flourished, competed and collaborated with their US counterpart.  Throughout this period the social power, organization and political influence of the working class witnessed a relative and absolute decline in their share of material income.  Technological innovations, including the re-organization of work, compensated for wage increases by reducing the ‘mass of workers' and in, particular, their capacity to pressure the prerogatives of management.  The capitalist strategic position in production was strengthened:  they were able to exercise near absolute control over the location and movements of capital. 

The established capitalist powers - especially in England and the US -- with large accumulations of capital and facing increasing competition from the fully recovered German and Japanese capitalists, sought to expand their rates of return by moving capital investments into finance and services.  At first, this move was linked and directed towards promoting the sale of their manufactured products by providing credit and financing toward the purchases of automobiles or ‘white goods'.   Less dynamic industrial capitalists relocated their assembly plants to low-wage regions and countries.  The results were that industrial capitalists took on more the appearance of ‘financiers' in the US even as they retained their industrial character in the operation of their overseas manufacturing subsidiaries and satellite suppliers.  Both overseas manufacturing and local financial returns swelled the aggregate profits of the capitalist class.  While capital accumulation expanded in the ‘home country', domestic wages and social costs were under pressure as capitalists imposed the costs of competition on the backs of wage earners via the collaboration of the trade unions in the US and social democratic political parties in Europe.  Wage constraints, tying wages to productivity in an asymmetrical way and labor-capital pacts increased profits.  US workers were ‘compensated' by the cheap consumer imports produced by the low-wage labor force in the newly industrializing countries and access to easy credit at home.

The Western pillage of the former-USSR, with the collaboration of gangster-oligarchs, led to the massive flow of looted capital into Western banks throughout the 1990s.  The Chinese transition to capitalism in the 1980s, which accelerated in the 1990s, expanded the accumulation of industrial profits via the intensive exploitation of tens of millions of wageworkers employed at subsistence levels.  While the trillion-dollar pillage of Russia and the entire former Soviet Union bloated the West European and US financial sector, the massive growth of billions of dollars in illegal transfers and money laundering toward US and UK banks added to the overdevelopment of the financial sector.  The rise in oil prices and ‘rents' among ‘rentier' capitalists added a vast new source of financial profits and liquidity.  Pillage, rents, and contraband capital provided a vast accumulation of financial wealth disconnected from industrial production.  On the other hand, the rapid industrialization of China and other Asian countries provided a vast market for German and Japanese high-end manufacturers:  they supplied the high quality machines and technology to the Chinese and Vietnamese factories.

US capitalists did not ‘de-industrialize' - the country did.  By relocating production overseas and importing finished products and focusing on credit and financing, the US capitalist class and its members became diversified and multi-sectoral.  They multiplied their profits and intensified the accumulation of capital.

On the other hand, workers were subject to multiple forms of exploitation: wages stagnated, creditors squeezed interest, and the conversion from high wage/high skill manufacturing jobs to lower-paid service jobs steadily reduced living standards.

The basic process leading up to the breakdown was clearly present:  the dynamic growth of western capitalist wealth was based, in part, on the brutal pillage of the USSR and Latin America, which profoundly lowered living standards throughout the 1990s.  The intensified and savage exploitation of hundreds of millions of low-paid Chinese, Mexican, Indonesian and Indochinese workers, and the forced exodus of former peasants as migrant laborers to manufacturing centers led to high rates of accumulation.  The relative decline of wages in the US and Western Europe also added to the accumulation of capital.  The German, Chinese, Japanese, Latin American and Eastern European emphasis on export-driven growth added to the mounting ‘imbalance' or contradiction between concentrated capitalist wealth and ownership and the growing mass of low-paid workers.  Inequalities on a world scale grew geometrically.  The dynamic accumulation process exceeded the capacity of the highly polarized capitalist system to absorb capital in productive activity at existing high rates of profit.  This led to the large scale and multiform growth of speculator capital inflating prices and investing in real estate, commodities, hedge funds, securities, debt-financing, mergers and acquisitions -- all divorced from real value-producing activity.  The industrial boom and the class constraints imposed on workers wages undermined domestic demand and intensified competition in world markets.  Speculator-financial activity with massive liquidity offered a ‘short-term solution': profits based on debt financing.  Competition among lenders fueled the availability of cheap credit.  Real estate speculation was extended into the working class, as wage and salaried workers, without personal savings or assets, took advantage of their access to easy loans to join the speculator-induced frenzy - based on an ideology of irreversible rising home values.  The inevitable collapse reverberated throughout the system - detonated at the bottom of the speculative chain.   From the latest entrants to the real estate sub-prime mortgage holders, the crisis moved up the ladder affecting the biggest banks and corporations, who engaged in leveraged buyouts and acquisitions.  All ‘sectors', which had ‘diversified' from manufacturing to finance, trade and commodities speculation, were downgraded.  The entire panoply of capitalists faced bankruptcy.  German, Japanese and Chinese industrial exporters who exploited labor witnessed the collapse of their export markets. 

The ‘bursting' financial bubble was the product of the ‘over-accumulation' of industrial capital and the pillage of wealth on a world scale.  Over-accumulation is rooted in the most fundamental capitalist relation:  the contradictions between private ownership and social production, the simultaneous concentration of capital and sharp decline of living standards.         

Obama and the Capitalist Crisis: A Class Analysis

Indicators of the deepening depression in 2009 are found everywhere:

Bankruptcies rose by 14% in 2008 and are set to rise another 20% in 2009 (Financial Times, Feb. 25, 2009; p27). 

The write-down of the Western big banks is running at 1 Trillion dollars and growing (according to the Institute for International Financing, the banking groups Washington lobby). (Financial Times , March 10, 2009 p.9).

            And according to the Financial Times (ibid) the losses arising from banks having to mark their investments down to market prices stand at 3 Trillion dollars - equivalent to a year's worth of British economic production.  In the same report, the Asian Development Bank is quoted as having estimated that financial assets worldwide have fallen by more than $50 trillion - a figure of the same order as annual global output.  For 2009, the US will run a budget deficit of 12.3% of gross domestic product...giant fiscal deficits...that will ultimately ruin public finances.

The world markets have been in a vertical fall: 

The TOPIX has fallen from 1800 in mid-2007 to 700 in early 2009;

Standard and Poor from 1380 in early 2008 to below 700 in 2009;

FTSE 100 from 6600 to 3600 in early 2009; 

Hang Seng from 32,000 in early 2008 to 13,000 at the start of 2009 (Financial Times, Feb 25, 2009; p27).

In the fourth quarter of 2008, GDP shrank at annualized rate of 20.8% in South Korea, 12.7% in Japan, 8.2% in Germany, 2.9% in the UK and 3.8% in the US (FT, Feb.25, 2009; p9).

The Dow Jones Industrial Average has declined from 14,164 in October 2007 to 6500 in March 2009. 

Year on year declines in industrial output were 21% in Japan, 19% in South Korea, 12% in Germany, 10% in the US, and 9% in the UK (Financial Times, Feb.25, 2009; p.9.)

Net private capital flows to less developed capitalist countries from the imperial countries were predicted to shrink by 82% and credit flows by $30 billion USD (Financial Times, Feb. 25, 2009; p9). 

The US economy declined by 6.2% in the last three months of 2008 and fell further in the first quarter of 2009 as a result of a sharp decline in exports (23.6%) and consumer spending (4.3%) in the final quarter of 2008 (British Broadcasting Corporation, Feb. 27, 2009). 

With over 600,000 workers losing their jobs monthly in the first three months of 2009, and many more on short hours and scheduled for axing throughout 2009, real and disguised unemployment may reach 25% by the end of the year.  All of the signs point to a deep and prolonged depression:

Automobile sales of General Motors, Chrysler and Ford were down nearly 50% year to year (2007-2008).  The first quarter of 2009 saw a further decline of 50%.

 Foreign markets are drying up as the depression spreads overseas. 

In the US domestic market, durable goods sales are declining by 22% (BBC, Feb. 27, 2009). 

Residential investments fell by 23.6% and business investment was down 19.1%, led by a 27.8% drop in equipment and software.

The rising tide of depression is driven by private business led disinvestment.  Rising business inventories, declining investment, bankruptcies, foreclosures, insolvent banks, massive accumulative losses, restricted access to credit, falling asset values and a 20% reduction in household wealth (over 3 trillion dollars) are cause and consequence of the depression.  As a result of collapse of the industrial, mining, real estate and trade sectors, there are at least $2.2 trillion USD of "toxic" (defaulting) bank debt worldwide, far beyond the bailout funds allocated by the White House in October 2008 and February and March 2009.

The depression is diminishing the worldwide economic presence of imperial countries and undermining the foreign capital-financed export strategies of Latin American, Eastern European, Asian and African regions. 

Among almost all conventional economists, pundits, investment advisors and various and sundry experts and economic historians, there is a common faith that "in the long-run", the stock market will recover, the recession will end and the government will withdraw from the economy.  Fixed on notions of past cyclical patterns, historical ‘trends', these analysts lose sight of the present realities which have no precedent:  the world nature of the economic depression, the unprecedented speed of the fall, and the levels of debt incurred by governments to sustain insolvent banks and industries and the unprecedented public deficits, which will drain resources for many generations to come.

The academic prophets of ‘long-term developments" arbitrarily select trend markers from the past, which were established on the basis of a political-economic context radically different from today.  The idle chatter of ‘post crisis' economists overlooks the open-ended and constantly shifting parameters therefore missing the true ‘trend markers' of the current depression.  As one analyst noted, "any starting conditions we select in the historical data cannot replicate the starting conditions at any other moment because the preceding events in the two cases are never identical" (Financial Times, Feb. 26, 2009; p24).  The current US depression takes place in the context of a de-industrialized economy, an insolvent financial system, record fiscal deficits, record trade deficits, unprecedented public debt, multi-trillion dollar foreign debt and well over $800 billion dollars committed in military expenditures for several ongoing wars and occupations.  All of these variables defy the contexts in which previous depressions occurred.  Nothing in previous contexts leading up to a crisis of capitalism resembles the present situation.  The present configuration of economic, political and social structures of capitalism include astronomical levels of state pillage of the public treasury in order to prop up insolvent banks and factories, involving unprecedented transfers of income from wage and salaried taxpayers to non-productive ‘rent earners' and to failed industrial capitalists, dividend collectors and creditors.  The rate and levels of appropriation and reduction of savings, pensions and health plans, all without any compensation, has led to the most rapid and widespread reduction of living standards and mass impoverishment in recent US history. 

Never in the history of capitalism has a deep economic crisis occurred without any alternative socialist movement, party or state present to pose an alternative.  Never have states and regimes been under such absolute control by the capitalist class  -- especially in the allocation of public resources.  Never in the history of an economic depression has so much of government expenditures been so one-sidedly directed towards compensating a failed capitalist class with so little going to wage and salaried workers.

The Obama regime's economic appointments and policies clearly reflect the total control by the capitalist class over state expenditures and economic planning.

Obama and the Capitalist Crisis:  A Class Analysis

The programs put forth by the US and West Europeans and other capitalist regions do not even begin to recognize the structural bases of the depression.

            First, Obama is allocating $1 trillion dollars to buy worthless bank assets and over 40% of his $787 billion stimulus package to insolvent banks and tax breaks, rather than to the productive sector, in order to save stock and bond holders, while over 600,000 workers lose their jobs monthly. 

Secondly, the Obama regime is channeling over $800 billion dollars to fund the wars in Iraq and Afghanistan to sustain military-driven empire building.  This constitutes a massive transfer of public funds from the civilian economy to the military sector forcing tens of thousands of unemployed young people to enlist in the military (Boston Globe, March 1, 2009). 

Thirdly, Obama's commission to oversee the "restructuring" of the US auto industry has backed their plans to close scores of factories, eliminate company-financed health plans for retirees and force tens of thousands of workers to accept brutal reductions in employee health care and pensions.  The entire burden for returning the privately owned auto industry to profits is placed on the shoulders of the wage, salaried and retired workers, and the US taxpayers. 

The entire economic strategy of the Obama regime is to save the bondholders by pouring endless trillions of dollars into insolvent corporations and buying the worthless debts and failed assets of financial enterprises.  At the same time his regime avoids any direct state investments in publicly owned productive enterprises, which would provide employment for the 10 million unemployed workers.  While Obama's budget allocates over 40% to military expenditures and debt payments, 1 out of every 10 Americans have been evicted from their homes, the number of Americans without jobs is rising to double digits, and the number of Americans on ‘food stamps' to provide basic food needs is rising by the millions throughout 2009.

            Obama's ‘job creation' scheme channels billions toward the privately owned telecommunication, construction, environmental and energy corporations, where the bulk of the government funds go to senior management and staff and provide profits to stock holders, while a lesser part will go to wage workers.  Moreover, the bulk of the unemployed workers in the manufacturing and service areas are not remotely employable in the ‘recipient' sectors.  Only a fraction of the ‘stimulus package' will be allocated in 2009.  Its purpose and impact will be to sustain the income of the financial and industrial ruling class and to postpone their long-overdue demise.  Its effect will be to heighten the socioeconomic inequalities between the ruling class and the wage and salaried workers.  The tax increases on the rich are incremental, while the massive debts resulting from the fiscal deficits are imposed on present and future wage and salaried taxpayers.

            Obama's wholehearted embrace and promotion of military-driven empire building even in the midst of record-breaking budget deficits, huge trade deficits and an advancing depression defines a militarist without peer in modern history.  Despite promises to the contrary, the military budget for 2009-2010 exceeds the Bush Administration by at least 4%.  The numbers of US military forces will increase by several hundred thousands.  The number of US troops in Iraq will remain close to its peak and increase by tens of thousands in Afghanistan, at least through 2009 (despite promises to the contrary).  US-based miliary air and ground attacks in Pakistan have multiplied geometrically.  Obama's top foreign policy appointees in the State Department, Pentagon, Treasury and the National Security Council, especially in any capacity involving the Middle East, are predominantly militarist Zionists with a long history of advocacy of war against Iran and with close ties with the Israeli high command.

            In summary, the highest priorities of the Obama regime are evidenced by his allocation of financial and material resources, his appointments of top economic and foreign policy-makers and in terms of which classes benefit and which lose under his administration.  Obama's policies demonstrate that his regime is totally committed to saving the capitalist class and the US empire.  To do so, he is willing to sacrifice the most basic immediate needs and future interests, as well as the living standards, of the vast majority of working and home-owning Americans who are most directly affected by the domestic economic depression.  Obama has increased the scope of military-driven empire building and enhanced the power position of the pro-Israeli warmongers in his administration.  Obama's ‘economic recovery' and military escalation strategies are financially and fiscally incompatible; the cost of one undermines the impact of the other and leaves a tremendous hole in any efforts to counteract the collapse of social services, rising home foreclosures, business bankruptcies and massive layoffs.

            The horizontal transfers of public wealth from the Obama governing elite to the economic ruling class does not "trickle down" into jobs, credit and social services.  Attempting to turn insolvent banks into credit-lending, profitable enterprises is an oxymoron.  The central dilemma for Obama is how to create conditions to restore profitability to the failed sectors of the existing US economy. 

There are several fundamental problems with his strategy:

First, the US economic structure, which once generated employment, profits and growth, no longer exists.  It has been dismantled in the course of diverting capital overseas and into financial instruments and other non-productive economic sectors.

            Secondly, the Obama ‘stimulus' policies reinforce the financial stranglehold over the economy by channeling great resources to that sector instead of ‘rebalancing' the economy toward the productive sector.  Even within the ‘productive sector' state resources are directed toward subsiding capitalist elites who have demonstrated their incapacity to generate sustained employment, foster market competitiveness and innovate in line with consumer preferences and interests.

            Thirdly, the Obama economic strategy of ‘top-down' recovery squanders most of its impact in subsidizing failed capitalists instead of raising working class income by doubling the minimum wage and unemployment benefits, which is the only real basis for increasing demand and stimulating economic recovery.  Given the declining living standards resulting from domestic decay and the expansion of military-driven empire, both embedded in the institutional foundation of the state, there are no chances for the kind of structural transformation that can reverse the ‘top-down', empire-absorbing policies promoted by the Obama regime.

            Recovery from the deepening depression does not reside in running a multi-trillion dollar printing operation, which only creates conditions for hyperinflation and the debasement of the dollar.  The root cause is the over-accumulation of capital resulting from over-exploitation of labor, leading to rising rates of profit and the collapse of demand.  The vast disparity between capital expansion and decline of worker consumption set the stage for the financial bubble.

            The ‘rebalancing' of the economy means creating demand (not from an utterly prostrate private productive sector or an insolvent financial system) via direct state ownership and long-term, large-scale investment in the production of goods and social services.  The entire speculative ‘superstructure', which grew to enormous proportions by feeding off of the value created by labor, multiplied itself in a myriad of ‘paper instruments' divorced from any use value.  The entire paper economy needs to be dismantled in order to free the productive forces from the shackles and constraints of unproductive capitalists and their entourage.  A vast re-training program needs to be established to convert stockbrokers into engineers and productive workers.  The reconstruction of the domestic market and the invention and the application of innovations to raise productivity require the massive dismantling of the worldwide empire.  Costly and unproductive military bases, the essential elements for military-driven empire building, should be closed and replaced by overseas trade networks, markets, and economic transactions linked to producers operating out of their home markets.  Reversing domestic decay requires the end of empire and the construction of a democratic socialist republic.  Fundamental to the dismantling of empire is the end of political alliances with overseas militarist powers, in particular with the state of Israel and uprooting its entire domestic power configuration, which undermine efforts to create an open democratic society serving the interests of the American people.

Posted in Blogroll on March 26, 2009 by D-Train

Dear Dick,

I write to you seeking some advice. I explain my problem. As you know we had a great time since the 80´s when Ronny took the White House...maybe do you remember all the fun we had with the guys, especially Milton, when we planned how to get out all those idiots and get theirs money. The plan was terrific: tell them that anyone could be rich if they let us to become even richer! It was a master move! Since tell them that if we got even more money some will "trickle down to them" haha and the "positive growth trend" hihi we created with "our own money creation approach" for 30 years ago or "The cash machine" as Milton used to refer it. Oh, Boy what a time!! Great Fun!! I had to recognise that Milton was a genius, R.I.P old boy! What a story!

Anyway, as you probably had heard some stuff had not been working properly the last year. Some of the guys from "the Street" got high with so much easy money and begun to sell some "insurance" to everyone without a penny in reserve, I think that they called the papers CDS or something like that. They got to idea from some Chinese guy that was working with the probability of a kid get cancer, his parents divorced, his best mate killed and his dog poison in the same time...almost zero. So they used the same arguments to sell a lot of those papers to idiots around the world, now saying that the probability that they papers loose all their value was zero, according to the formula! Great idea!

Well, the problem was, as you know now, that the prices went down...you know I think the guys had a debt mountain of some trillions and had no a single penny... well , no some money they are prepared to take back from the Cayman islands anyway. So we talked with the guys in Washington and told them that they had to pump up some cash or otherwise the whole enchilada would explode in the front of their face! They believe us again the jackasses!! Incredible! I  asure you that tall will be fine. The guys from D.C. presented no problem as expected, you know that they are good people, decent people...our people.

No, the problem is that now the idiots from "main street" as we call them now have begun to protest and to ask a lot of questions...Why the government has to support us, where the money is coming from, what about the schools and the pensionfunds and a lot of shit...I'm completely convinced that the idiots that have nothing more to do and are sitting all the day in front of theirs computer surfing and bloging are part of the problem and I think that we have to address this issue rather sooner than later...we can not permit, after lying hundreds of millions in TV stations , newspapers and other stuff, that some frustrated commies take down all this "educational afford"! You know, as a security measure we employed only "people with the right mental disposition" i.e. people that support our way of seeing the world (most of them unfortunately are not "true believers" but only people seeking our gratifications...bonuses they call them now I believe), but the blogers are taking down the charade...We have certainly stop them asap!

Even worst is the fact that some jackass are arguing in public that we had to leave the "free market" works! It is quite worrying that there are some idiots out there that still believe all the crap we talked them. We had successfully pumped up theirs brains with some illusions that those jackasses still defend, but now there are others time my friend! We told the idiots about "free markets" and we talk about something about "democracy" and "liberty"... which of course we mean "liberty of action for us"...as when we talk about "free markets" we mean of course " free for us" ...As you explain for us for long time ago.I don't remember exactly how we put the whole charade, cause I had at the time a terrible hangover...Well I can tell you that as we own almost all media it was not difficult to pumping out all this bullshit without any problem... But now we are experience some problems with those "hard core" people that still is arguing about "the free market" and other stuff...they are really making a hell for us! They don't understand that the time for such rubbish is over...We have to stop them before they damage us! This is what happens when you mix idiots with the people that really know what is all about!! I hate those amateurs!

They are talking a lot of crap: That our guys in Washington don't need to give us some cash, that the "market" is going to solve the whole thing and other bullshit! Ok, we told them to say that the last 30 years and it was working pretty well until it doesn't... but those idiots don't understand the point: it was as long as we got the money...and if we don't get the cash in this way there is not point in continue with the charade! Now, we have to argue that Uncle Sam has to help us for the benefit of everyone and the nation (of course just help us ...not take our money and leave us naked) ...but those people, the market "liberals", are really causing us some problems with their rubbish about the "free market", the "invisible hand" and other stupidity!

I ask you what we can do now. We have certainly shut up those idiots before they damage us seriously and more and more people begin to ask questions!

For instance, lately the mob had begun to ask about the bonuses! That it was too much money and stuff like that...you know...the problem is that before we could tell them that it was necessary to do a "good job"...you know...but now when every idiot knows that we lost control ( and some trillions of dollars) what can we say?

We have to be really creative this time! The piece of art will be to explain to the mob why they have to give us their tax money, without requiring anything from us and respecting the sacred "private property" i.e. our property! Ours banks! and in the same time we get our "well deserved share" of this money!

It will require a lot of inventive talent and audacity. It is because of that I write to you dear Dick.

Sincerely yours

P. Wolfowitz or Wolfi for you...;=)

PS: Say Hello to Donald and "Georgi" when you see them!

PS2: The good news are that last Monday the guys from Washington come with a genial idea how to give us some money without so much questions: they called the giving away for " Public-private-Investment -Fund" PPIF, I tell you it is a terrific deal. They give us say between 90 and 95 cents for buying something that as most is worth 5-20 cent, but with the face value of 1 dollar. If some idiots pay in the future say 1 dollar and 5 cent, we keep the diff of 10 cent (105-95), this is a 100 % return to our "investment" of 5 cent!! But, here is the magical with the arrangement: if we can not find some jackass that buys the junk paper we have not to pay at all the 95 cent we "borrow" to buy them in the first place!! Genial! All to save the economy (our economy dude) !! Hehe. Ohh these boys in Washington!!

 And a shorter version of the same letter

Dear Dick,

I ´m happy but a little bit concern about that there are some idiots out there that still believe all the crap we talked them. We had successfully pumped up theirs brains with some illusions that those jackasses still defend.

We told the idiots about "free Markets" and we talk about something about "democracy" and "Liberty"... which of course we mean "Liberty of action to us"...as when we talk about "Free markets" we mean of course "Free for us" ...I don't remember exactly how we put the whole charade, cause I had at the time a terrible hangover...Well I can tell you that as we own almost all media it was not difficult to pumping out all this bullshit without any problem...

As a security measure we employ only "people with the right mental disposition" i.e. people that support our agenda (most of them unfortunately are not "true believers" but only people seeking our gratifications...bonuses they call them now I believe) ...anyway we had success quite well until recently...when we get in, how can I say, in same unexpected troubles...You know...the prices went down more that we expected...and the "positive growth trend" we created with "our own money creation approach" for 30 years ago or "The cash machine" as Milton used to refer it. Oh, Boy what a time!! Great Fun!!

Now we had to find out something and soon...We had convinced some friends in Washington to get us the taxpayers´ money... anyway we talked them that the whole enchilada would explode if they refuse! They believe us again the jackasses!! Incredible!

Well, we had some minor problem with some "hard core" people that still is arguing about "the free market" and other irrelevant stuff...they are really making a hell for us! They don't understand that the time for such rubbish is over...We have to stop them before they damage us! This is what happens when you mix idiots with people that really know what is all about!!

Well, I have to leave. I have some politicians to convert from "Neoliberal" to "Keynesian"...My bank need a couple more of billions dollar...you know.

Ciao My friends

Wolfowitz or Wolfi for you...;=)

Total Credit Market Debt is Way High

 This little chart from the Financial Times is, as it were, the master chart, the one that tells you just about everything you need to know about the debt problem. Total credit market debt as a percentage of GDP reached 350% in 2008, with financial, government, non-financial, and household debt making new records.

The FT graph is a bit sly in its representation of government debt, as it almost seems the thing is contracting. Appearances are deceiving, as we see below.

The three graphs that follow, courtesy of Contrary Investor, give a better breakdown of the overall picture from the non-governmental side of things.

The rise of financial debt has been the most meteoric, growing from almost nothing in the 1950s to nearly 120% of GDP in 2008.

Household debt took off in the 1980s and is now about equal to GDP, way above the long term average.

Non-financial corporate debt seems a piker by comparison with these debt-imbibing sectors, but it too followed the trend, rising from less than 25% to nearly 50% of GDP since the 1950s.

Yves Smith observes that the official debt estimates need to be treated with some caution. "There are some items that are arguably overstated (lines of credit are included at their full amount), but others are not included (second and third mortgages, and perhaps most important, contingent exposures like AIG's credit default swap guarantees)." 11/25/08 Labels: D. Debt Binge   

Debt to GDP from 1920s

Like the previous chart, this gives total credit market debt as a percent of gdp, but over a longer period of time-from the 1920s.  

Note the big surge in the ratio that took place during the Great Depression. That was due not to the expansion of debt but to the collapse of GDP. The collapse of incomes and the deflation in prices made debts contracted during the 1920s boom two or three times more onerous than previously, precipitating default and bankruptcy.

It is the comparison between our current 350% debt/GDP ratio and the 140 to 170% ratio during the 1920s and the 1945-1980 period that is most striking. Over the long run, that lower ratio may come to appear much more "normal" than our recent stratospheric attainments. A happy and healthy capitalism = debt/GDP ratios below 170%? I'm mighty tempted by that hypothesis, personally. Posted by DCH at 1:31 PM 0 comments Labels: D. Debt Binge   

History is Not Bunk

Here's an even longer term view, though measuring non-public debt as a percentage of GDP (rather than, as in the previous charts, total credit market debt). The maker of the chart, with the red line, is suggesting the contours of a long or Kondratieff wave, but it is the gold line to which we draw attention here. It shows the unprecedented nature of current debt levels.

This is especially a problem for the Anglosphere-Britain and Australia also imbibed deeply the sweet elixir. The White Man's Burden, it turns out, is debt. The chart below from Australian economist Steve Keen makes the point.

In the midst of a debt crisis, the question naturally occurs: how is it that the authorities seemingly took no notice as debt levels reached these historically unprecedented levels? What were they thinking? Keen supplies a disturbing answer:

"It has happened because Central Banks are run by economists, and the dominant "Neoclassical" faction within economics ignored the real lessons of the Great Depression.

The false lesson that Neoclassical economics preaches is that the market economy is fundamentally stable, and the Great Depression was caused by the monetary authorities tightening credit in the aftermath to the Stock Market Crash, rather than loosening it.

The real lesson of the 1930s is that a credit-driven market economy is fundamentally unstable, and a Great Depression occurs when debt-financed speculation results in excessive private debt at the same time as inflation is low."

Under "the misguidance of conventional economic theory," and with their "Neoclassical eyes fixated on the rate of inflation," central bankers and other official organs ignored the huge buildup of private debt. "This is why the sudden collapse of the world economic order took economists by surprise. They were looking at their mathematical models, which ignore private debt (and indeed money!), rather than at the real world, where debt is king."

10/27/08

Labels: D. Debt Binge   

Profits of Financial Firms

The profits of financial firms, as this chart from Kevin Philip's Bad Money shows, shot up to 40% of total corporate profits over the last two decades, far outpacing manufacturing. The chart goes to 2004, a fact which malign technological forces are preventing me from displaying properly.

Labels: D. Debt Binge   

Debt Fueled the Equity Boom

Over the 2004-07 period, US corporations went on a share-buying spree, funded largely through increased debt. The blogger Suddendebt notes that "the net amount of equity withdrawn from US markets through buy-backs, buy-outs and LBO's . . . reached a record $210 billion in the 3Q2007, from near zero in early 2004. The US has never before experienced such a sustained equity withdrawal in the history of its public markets. In just four years between 2004-07 total net equity withdrawn came to over $1.6 trillion, an enormous sum when compared to US market capitalization (end-2003: $14.3 trillion, end-2007: $19.9 trillion). The effect was to provide a constantly growing underlying "bid" for cash shares, one that leveraged the performance of indices: while total capitalization rose only 39% in the above period, the S&P 500 index gained 67%, i.e. 70% faster. Where did the money for the buy-backs and LBO's come from? Some came from corporate earnings, which reached a record ratio of GDP; but most of it came from debt. Record low credit spreads and volatilities encouraged CFOs and private equity funds to buy shares with borrowed money . . . ."

In the first two quarters of 2008, the trend sharply reversed. See update from New York Fed (page 11).

The practice of going into debt to buy back stock leaves no margin for adverse fortune and has put many companies at risk. See Border's sad tale, as related by Jeff Matthews. Its $250 million share repurchase plan in February 2005, when the stock was $25, received plaudits on Wall Street but, as Matthews notes, "it crippled a once wonderful chain of bookstores." Its "repurchase program was far too aggressive. Five years ago Borders had a $1.9 billion market value and more cash than debt on its books. Today, Borders has a $50 million market value (yes, that's right, $50 million) and more debt than cash. Like, $525 million in debt against $38 million in cash. Oh, and the stock's current price? $1.00 a share." At best, notes Matthews, this reckless exchange of equity for debt has mortgaged the future; at worst it has destroyed the company.  

11/28/08

Labels: D. Debt Binge   

Margin Debt

Traders on Wall Street were also highly leveraged. Margin debt topped out at $381 billion in July 2007, surpassing the $275 billion achieved at the top of the tech and telecom bubble in 2000. A collapse in margin debt is part of the general deleveraging now ongoing. It contributes to market volatility as traders are subject to margin calls and forced selling.

The above chart, from the folks at contraryinvestor, is out of date, and margin debt fell sharply into the fall of 2008. The table below from the New York Stock Exchange shows it at $233 billion at the end of October 2008.  

The column on the

It will be interesting to see if the November margin figures show a decline to 2002 levels. If not, that would be a significant divergence from the equity averages, which for a time went through the 2002-03 lows.

Investment Tools has updated charts on

11/28/08

right showing credit balances in margin accounts provides an even more dramatic picture of the deleveraging: it fell from an all-time high of $386 billion in August 2008 to $187 billion in October 2008, down over 50%.margin debt here.

Posted by DCH at 1:11 PM 0 comments Labels: D. Debt Binge   

Consumer Debt Outstanding

Consumers were not laggards in the debt accumulation business. Though mostly encumbered with home mortgage debt, consumer credit has also risen substantially. Posted by DCH at 1:10 PM 0 comments Labels: D. Debt Binge   

About That Loan

As households have gone deeper into debt, their "financial flexibility" has badly deteriorated, as Contrary Investor shows in this disturbing chart, definitely a contender for chart of the year.  

Think about this in relation to the sudden increase in the cost of credit noted here and here, and you gotta conclude that household spending will decline precipitously.

This is our financial system: When going into debt would be bad for you, you can have all you want. When you need it, you can't have it.

Labels: D. Debt Binge   

National Debt as Percent of GDP (from 1950)

This chart shows the great contributions to national indebtedness made by the Republican administrations of Reagan/Bush and George W. Bush. Thanks guys for the fiscal responsibility. Did you know that "defense is not a budget item"? Well, you haven't been paying attention. "Deficits don't matter," as Vice President Cheney advised. Reagan proved it. Posted by DCH at 1:06 PM 0 comments Labels: D. Debt Binge   

The Two National Debts

How big is the national debt? $10.3 trillion? $5.8 trillion? Both those figures are bandied about, and both, strangely, are accurate in their way. The reason is that the government keeps two sets of accounts: the General Fund and various trust funds, the largest of which are Social Security and Medicare.

This chart is a snapshot from the moving clocks at zfacts.com, which are a wonder to behold. Clicking on the link (scroll down) shows a General Fund running deeper in the red and the trust funds as accumulating surpluses, such that the net national debt is now $5.8 trillion.

We know, however, that there will come a time when the trust funds for Social Security and Medicare turn from generating surpluses to deficits. The surpluses now accumulated, moreover, are not sufficient to cover the retirement needs of the baby boomers, and both Social Security and Medicare face severe long term funding problems. It is therefore reasonable to segregate the general fund from the retirement funds in estimating the national debt-that is, to place it at $10.3 trillion.

That figure is the debt we have accumulated to run the government, fight our wars, pay interest on the debt, and bail out our bankers. It, rather than $5.8 trillion, is the most apt figure for estimating the size of the public debt. As the national debt clock illustrates, that $10.3 trillion figure is growing rapidly. I mean, $16,637,366 in 174 seconds is pretty darn fast. But as the next chart shows, the $10.3 trillion figure actually understates the true dimensions of the fiscal gap.

October 17, 2008

Labels: D. Debt Binge   

Understated Obligations

As this alarming table from Grant's Interest Rate Observer shows, the US government has obligations well in excess of that covered by its non-marketable securities and its bills, notes, and bonds.

*** Included in Grant's reckoning are some $12.5 trillion in guarantees associated with the housing and financial sectors. A year and a half ago, the dominant view held these guarantees as very unlikely to be called and therefore not really countable against future demands on government resources. In 2008, we know better.

*** The Federal employee and veterans benefits, at $4.7 trillion, also do not appear in the official debt statistics, yet must be paid as surely as the interest on the Treasury bond.

*** Then there's the cavernous future, the deep deep pit, that compromises Social Security, Medicare, and Medicaid obligations.

Labels: D. Debt Binge   

Stairway to Heaven: Yet More Unfunded Obligations

This graph from Grant's Interest Rate Observer shows spending on Social Security, Medicare and Medicaid climbing relentlessly after 2012.  

Alarming as this is, that stairway to heaven is unlikely to be climbed; surely a day of reckoning will come before the entire geriatric class is supported by a small band of workers taxed at a 90 percent marginal rate. But it's undoubtedly a huge bill as the worker-to-retiree ratio slips downward from 3:1 to 2:1.

Charles Hugh Smith shows below that we will have to keep running just to avoid falling down.

Labels: D. Debt Binge   

Total US Debt and US Debt/World Equity ratio

This chart from the Grandfather Economic Report estimates total American debt at $53 trillion. Unlike the $48 trillion sometimes cited, Grandpa includes the federal debt to trust funds (but not other unfunded obligations in Social Security and Medicaid, nor the $12 trillion in financial and real estate guarantees).  

Whatever the exact size of total US debt, it's fair to say that it is practically equivalent to world GDP, estimated at $60 trillion. As we saw earlier, world stock market value reached a high of $62.57 trillion on October 31, 2007 but had fallen to $42.21 trillion on September 30, 2008. It then shaved off another $10 trillion as markets crashed into late October. Let's peg it at around $30-35 trillion until updated figures come along.

Taking total US debt at $50 to $60 trillion, and world stock market capitalization at $30 to $40 trillion, we've still got total US debt at some 120% to 200% of world stock market value, gyrating daily. In other words, the debt owed by Americans is some 160% larger, give or take whatever, than the expected future earnings of all the world's publicly listed corporations!

Can this possibly be sane?S. Surely econopicdata could serve us up with a nice set of charts showing variations on the "US Debt/World Equity Ratio." Thanking you in advance.

P.

10/26/08

Labels: D. Debt Binge

Sunday

2009 Deficit to $2 Trillion, 12.5% of GDP

This chart from the International Political Economy blog was a September 2008 estimate of the likely government deficit in 2009. But estimates keep rising. According to Morgan Stanley's chief economist, ‘The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983." Anyone for $3 trillion? Do I hear $3 trillion? Posted by DCH at 9:25 PM 0 comments Labels: D. Debt Binge   

Maxims on Debt and Credit

Maxims represent the accumulated wisdom of the human race and should always be consulted as a potential corrective to current infatuations. They are often a lot more valuable, as expressing the essence of a situation, than ponderous theory building enterprises. Herewith, therefore, a collection of voices rising from the grave to illuminate these deep questions of debt and credit. Except for the last entry from Benjamin Franklin, to which I am very partial, all are drawn from H. L. Mencken, A New Dictionary of Quotations On Historical Principles From Ancient and Modern Sources (Knopf, 2001).  

"Debt is the slavery of the free." Publilius Syrus: Sententiae, c. 50 B.C.

"Debt is better than death," James Howell, Proverbs, 1659.

"Pride does not like to owe, and self-love does not like to pay." La Rochefoucauld, Maxims, 1665.

"Better go to bed supperless than rise in debt." John Ray, English Proverbs, 1670.

"Out of debt, out of danger." Thomas Fuller, Gnomologia, 1732.

"Living upon trust is the way to pay double." Ibid.

"Sins and debts are always more than we think them to be." Ibid

"Debt is a preceptor whose lessons are needed most by those who suffer from it most." R.W. Emerson, Nature, 1836.

"There are but two ways of paying debt-increase of industry in raising income, increase of thrift in laying out." Thomas Carlyle, Past and Present, 1843

"A national debt, if it is not excessive, will be to us a national blessing." Alexander Hamilton, Letter to Robert Morris, April 30, 1781

"I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared."
Thomas Jefferson, Letter to Governor Plumer, 1816.

"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." Jefferson, Letter to John Taylor, 1816.

"It is incumbent on every generation to pay its own debts as it goes-a principle which, if acted on, would save one-half the wars of the world." Jefferson, Letter to Destutt Tracy, 1820.

"Public credit means the contracting of debts which a nation never can pay." William Cobbett, Advice to Young Men, II, 1829.

"We are opposed to the issuing of interest-bearing bonds of the United States in time of peace." Democratic National Platform, 1896.

"He that hath lost his credit is dead to the world." George Herbert, Outlandish Proverbs, 1639.

"Credit lost is like a Venice-glass broken." John Ray, English Proverbs, 1670

"In this institution of credit, which is as universal as honesty and promise in the human countenance, always some neighbor stands ready to be bread and land and tools and stock to the young adventurer." R.W. Emerson, The Conservative, 1841.

"No man's credit is as good as his money." E.W. Howe, Sinner Sermons, 1926.

"Credit, like a looking-glass
Broken once, is gone, alas!"
Author unidentified.

"As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible." George Washington, Farewell Address, September 17, 1796.

"In those circumstances we cannot be too careful to preserve the friendships we have acquired abroad, and the Union we have established at home, to secure our Credit by a punctual discharge of our obligations of every kind, and our Reputation by the wisdom of our councils: since we know not how soon we may have a fresh occasion for friends, for credit, and for reputation." Benjamin Franklin to President of Congress, October 22, 1783.

Dear friend

I write to you seeking some advice. I explain my problem. As you know we had a great time since the 80´s when Ronny took the White House...maybe do you remember all the fun we had with the guys, especially Milton, when we planned how to get out all those idiots and get theirs money. The plan was terrific: tell them that anyone could be rich if they let us to become even richer! It was a master move! Since tell them that if we got even more money some will "trickle down to them" and the "positive growth trend" we created with "our own money creation approach" for 30 years ago or "The cash machine" as Milton used to refer it. Oh, Boy what a time!! Great Fun!! I had to recognise that Milton was a genius, R.I.P old boy! What a story!

Anyway, as you probably had heard some stuff had not been working properly the last year. Some of the guys from "the Street" got high with so much easy money and begun to sell some "insurance" to everyone without a penny in reserve, I think that they called the papers CDS or something like that. They got to idea from some Chinese guy that was working with the probability of a kid get cancer, his parents divorced, his best mate killed and his dog poison in the same time...almost zero. So they used the same arguments to sell a lot of those papers to idiots around the world, now saying that the probability that they papers loose all their value was zero, according to the formula! Great idea!

Well, the problem was, as you know now, that the prices went down...you know I think the guys had a debt mountain of some trillions and had no a single penny... well , no some money they are prepare to take back from the Cayman islands anyway. So we talk with the guys in Washington and told them that they had to pump up some cash or otherwise the whole enchilada would explode in the front of their face! They believe us again the jackasses!! Incredible! I The guys from D.C. presented no problem as expected, you know that they are good people, decent people...

No, the problem is that now the idiots from "main street" as we call them now have begin to protest and to ask a lot of questions...Why the government has to support us, where the money is coming from, what about the schools and a lot of shit...I'm completely convinced that the idiots that have nothing more to do and are sitting all the day in front of theirs computer surfing and bloging are part of the problem and I think that we have to address this issue rather sooner than later...we can not permit, after lying hundreds of millions in TV stations , newspapers and other stuff, that some frustrated commies take down all this job! You know, as a security measure we employed only "people with the right mental disposition" i.e. people that support our agenda (most of them unfortunately are not "true believers" but only people seeking our gratifications...bonuses they call them now I believe), but the blogers are taking down the charade...

Even worst is the fact that some jackass are arguing in public that we had to leave the "free market" works! It is quite worrying that there are some idiots out there that still believe all the crap we talked them. We had successfully pumped up theirs brains with some illusions that those jackasses still defend, but now there are others time my friend! We told the idiots about "free markets" and we talk about something about "democracy" and "liberty"... which of course we mean "liberty of action for us"...as when we talk about "free markets" we mean of course " free for us" ...As you explain for us for long time ago.I don't remember exactly how we put the whole charade, cause I had at the time a terrible hangover...Well I can tell you that as we own almost all media it was not difficult to pumping out all this bullshit without any problem... But now we are experience some problems with those "hard core" people that still is arguing about "the free market" and other stuff...they are really making a hell for us! They don't understand that the time for such rubbish is over...We have to stop them before they damage us! This is what happens when you mix idiots with the people that really know what is all about!! I hate those amateurs!

They are talking a lot of crap: That our guys in Washington don't need to give us some cash, that the "market" is going to solve the whole thing and other bullshit! Ok, we told them to say that the last 30 years and it was working pretty well until it doesn't... but those idiots don't understand the point: it was as long as we got the money...and if we don't get the cash in this way there is not point in continue with the charade! Now, we have to argue that Uncle Sam has to help us for the benefit of everyone and the nation (of course just help us ...not take our money and leave us naked) ...but those people, the market "liberals", are really causing us some problems with their rubbish about the "free market", the "invisible hand" and other stupidity! I ask you what we can do now. We have certainly shut up those idiots before they damage us seriously and more and more people begin to ask questions!

For instance, lately the mob had begun to ask about the bonuses! That it was too much money and stuff like that...you know...the problem is that before we could tell them that it was necessary to do a "god job"...you know...but now when every idiot know that we lost control ( and some trillions of dollars) what can we say? We have to be really creative this time! The piece of art will be to explain to the mob why they have to give us their tax money, without requiring anything from us and respecting the sacred "private property" i.e. our property of the banks and in the same time we get our "well deserved share" of this money! It will require a lot of inventive talent and audacity. It is because of that I write to you dear Dick.

Sincerely yours

P. Wolfowitz or Wolfi for you...;=)

PS: Say Hello to Donald and "Georgi" when you see them!

PS2: The god news are that last Monday the guys from Washington come with a genial idea how to give us some money without so much questions: they called the giving away for " Public-private-Investment -Fund" PPIF, I tell you it is a terrific deal. They give us say between 90 and 95 cents for buying something that as most is worth 5-20 cent, but with the face value of 1 dollar. If some idiots pay in the future say 1 dollar and 5 cent, we keep the diff of 10 cent (105-95), this is a 100 % return to our "investment" of 5 cent!! But, here is the magical with the arrangement: if we can not find some jackass that buys the junk paper we have not to pay at all the 95 cent we "borrow" to buy them in the first place!! Genial! All to save the economy (our economy dude) !! Hehe. Ohh these boys in Washington

This entry was posted on March 26, 2009 at 11:13 am and is filed under

Dear friends,

I ´m happy but a little bit concern about that there are some idiots out there that still believe all the crap we talked them. We had successfully pumped up theirs brains with some illusions that those jackasses still defend.

We told the idiots about "free Markets" and we talk about something about "democracy" and "Liberty"... which of course we mean "Liberty of action to us"...as when we talk about "Free markets" we mean of course "Free for us" ...I don't remember exactly how we put the whole charade, cause I had at the time a terrible hangover...Well I can tell you that as we own almost all media it was not difficult to pumping out all this bullshit without any problem...

As a security measure we employ only "people with the right mental disposition" i.e. people that support our agenda (most of them unfortunately are not "true believers" but only people seeking our gratifications...bonuses they call them now I believe) ...anyway we had success quite well until recently...when we get in, how can I say, in same unexpected troubles...You know...the prices went down more that we expected...and the "positive growth trend" we created with "our own money creation approach" for 30 years ago or "The cash machine" as Milton used to refer it. Oh, Boy what a time!! Great Fun!!

Now we had to find out something and soon...We had convinced some friends in Washington to get us the taxpayers´ money... anyway we talked them that the whole shit would explode if they refuse! They believe us again the jackasses!! Incredible!

Well, we had some minor problem with some "hard core" people that still is arguing about "the free market" and other irrelevant stuff...they are really making a hell for us! They don't understand that the time for such rubbish is over...We have to stop them before they damage us! This is what happens when you mix idiots with people that really know what is all about!!

Well, I have to leave. I have some politicians to convert from "Neoliberal" to "Keynesian"...My bank need a couple more of billions dollar...you know.

Ciao My friends

Ladies and Gentlemen,

Your next summit takes place in a few days in London; but are you aware that you have less than a semester to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage.

If indeed you began to suspect the onset of a sizeable crisis less than a year ago, LEAP/E2020, in the second issue of their « Global Europe Anticipation Bulletin » (GEAB N°2), anticipated that the world was about to enter into the « trigger phase » of a crisis of historic proportions. Since then, month after month, LEAP/E2020 has relentlessly continued to produce highly accurate forecasts of the development of this crisis with which the world is now struggling. For this reason, we feel entitled to write you this open letter which we hope will aid you on the choices you will have to make in a few days. READ MORE HERE

This crisis is getting more and more dangerous. Recently, in the 32nd edition of its Bulletin, LEAP/E2020 raised an alarm of direct concern to you, the leaders of the G20. If, when gathered in London next April 2nd, you are not able to adopt a number of bold and innovative decisions, focused on the essential issues and problems, and to initiate them by summer 2009, then the crisis will entail a « general geopolitical dislocation » by the end of the year, affecting the international system as well as the very structure of large political entities such as the United States, Russia, China or the EU. Any chance for you to control the fate of the 6 billion inhabitants of the world will then be over.

Your choice: a 3- to 5-year crisis or a decade-at-least long crisis?

Until now you have merely been concerned with the symptoms and secondary effects of this crisis because, unfortunately, nothing prepared you to face a crisis of such an historic scale. You thought that adding more oil to the global engine would be enough, unaware of the fact that the engine was broken, with no hope of repair. In fact, a new engine must be built, and time is running out, as the international system deteriorates further each month.

In the case of a major crisis, one must get to the heart of the matter. The only choice is between undertaking a number of radical changes, thus greatly shortening the duration of the crisis and diminishing its tragic outcome or, on the contrary, refusing to make any such changes in an attempt to save what is left of the present system, thus extending the crisis’ duration and increasing all the negative consequences. In London, next April 2nd, you can either pave the way for the crisis to be solved in an organised manner in 3 to 5 years, or drag the world through a terrible decade.

We will content ourselves with giving you three recommendations that we consider strategic ones in the sense that, according to LEAP/E2020, if they have not been initiated by this summer 2009, global geopolitical dislocation will become inevitable from the end of this year onward.

LEAP'S THREE STRATEGIC RECOMMENDATIONS

1. The key to solving the crisis lies in creating a new international reserve currency!

The first recommendation is a very simple idea: reform the international monetary system inherited post-wwii and create a new international reserve currency. The US Dollar and economy are no longer capable of supporting the current global economic, financial and monetary order. As long as this strategic problem is not directly addressed and solved, the crisis will grow. Indeed it is at the heart of the crises of derivative financial products, banks, energy prices... and of their consequences in terms of mass unemployment and collapsing living standards. It is therefore of vital importance that this issue should be the main subject of the G20 summit, and that the first steps towards a solution are initiated. In fact, the solution to this problem is well-known, it is about creating an international reserve currency (which could be called the « Global ») based on a basket of currencies corresponding to the world’s largest economies, i.e. US dollar, Euro, Yen, Yuan, Khaleeji (common currency of oil-producing Gulf states, to be launched in January 2010), Ruble, Real..., managed by a « World Monetary Institute » whose Board will reflect the respective weight of the economies whose currencies comprise the « Global ». You must ask the imf and concerned central banks to prepare this plan for June 2009, with an implementation date of January 1st, 2010. This is the only way for you to regain some control over currently unwinding events, and this is the only way for you to bring about shared global management, based on a shared currency located at the centre of economic and financial activity. According to LEAP/E2020, if this alternative to the currently collapsing system has not been initiated by this summer 2009, proving that there is another solution than the « every man for himself » approach, today’s international system will not survive this summer.

If some of the G20 states think that it is better to maintain the privileges related to the « status quo » as long as possible, they should meditate the fact that, if today they can still significantly influence the future shape of this new global monetary system, once the phase of global geopolitical dislocation has started they will lose any capacity to do so.

2. Set up bank control schemes as soon as possible!

The second recommendation has already been mentioned many times in the preliminary debates to your upcoming summit. It should therefore be easy to adopt. It is about creating, before the end of this year, a scheme of bank control on a global scale, suppressing all the system’s « black holes ». A number of options have already been suggested by your experts. Make up your mind now: nationalize financial institutions as soon as is necessary! It is the only way to prevent a new episode of massive indebtment by them (the kind of episode which significantly contributed to the current crisis), and to show to the general public that you have some credibility to deal with bankers.

3. Get the IMF to assess the US, UK and Swiss financial systems!

The third recommendation relates to a politically sensitive issue, which cannot be ignored. It is essential that, no later than July 2009, the imf presents to the G20 an independent assessment of the three national financial systems at the heart of the current financial crisis: US, UK and Switzerland. No sustainable recommendation can be efficiently implemented as long as no one has any clear understanding of the damage caused by the crisis inside these three pillars of the global financial system. It is no longer time to be polite with the countries located at the centre of the current financial chaos.

Write a simple and short statement!

Finally, please allow us to remind you that your task is to restore confidence among 6 billion people and among millions of public and private organisations. Therefore do not forget to write a short statement – no more than 2 pages, presenting a maximum of 3 to 4 key ideas that non-experts can read and understand. If you fail to do so, no one will read what you have to say apart from a narrow circle of specialists, therefore you will not revive confidence among the general public and the crisis will be doomed to get worse.

If this open letter helps you to feel that History will judge you according to the success or failure of this Summit, then it has been useful. According to LEAP/E2020, your citizens will not wait any longer than a year before they judge you. This time at least, you will not be able to say no one warned you!

Franck Biancheri
Director of studies of LEAP/E2020, www.leap2020.eu
President of Newropeans, www.newropeans.eu

According to experts’ estimates, the probability of default on US treasury bonds is very high at the moment. The rumors are not new at all. Moreover, experts say that the USA has already started to work on an opportunity to refuse from the dollar in order to avoid debt payments.

Dmitry Abzalov, an expert with the Center for Russia ’s Political Conjuncture, said that governments currently take on the debts of corporations. “The corporate debts crisis thus becomes the crisis of governmental debts. The US debt in the beginning of 2009 amounted to $10.6 trillion. Taking into consideration the current deficit budget of the United States, as well as the prospects for the deficit of the budget during the current year, it becomes clear that the US Treasury bond market is based on no alternative whatsoever. There is no other way for investors to invest their funds with treasury bonds being the only option,” the expert told Bigness.ru.

When the world economy recovers, investors will realize that there are plenty of other opportunities for investments, the European bonds, for example (if the European economy recovers from the crisis too, of course), or the bonds of developing countries.

“The pyramid of US bonds will collapse in this case. The debt percentage grows every day, which makes the USA borrow more and more on a daily basis. America will have no chances to pay off the debt,” the expert said.

Inga Foksha, an analyst with Aton Investment Company, agrees that the US default is quite possible, although she is certain that it will not happen unless the world finds an alternative to the US dollar. The dollar will collapse immediately in case of default, which is absolutely unacceptable, because 63 percent of world reserves are saved in dollars. Their collapse will trigger the global economic collapse.

“Technically, the default of the United States may occur during three or five years, although it is too early to say that it could be possible. The USA can print new dollars to pay their debts with them,” she said.

Nevertheless, the US government bonds still enjoy investors’ support and are still considered a risk-free investment.

Dmitry Abzalov believes that the current situation with the US national debt may end with a new war. The war will destroy excessive liquidity and the current debt.

“The war in Iraq began to delay the US crisis, which started brewing in the US economy at the end of 2000,” he said.

The Americans have been trying to raise their economy with the help of military actions for decades, since the Great Depression of the 1930s. A war boosts the nation’s industry, even if a recovery is based on defense orders.

At the recently completed annual National Peoples Congress (NPC), Chinese Premier Wen Jiabao promised the regime's policies would ensure 8 percent growth in 2009. The World Bank, however, cut its projection for this year to 6.5 percent, down from the previous 7.5 percent.

With the US, Europe and Japan all in recession, 6.5 percent sounds very positive. Reflecting the generally upbeat tone of the bank's outlook, World Bank country director David Dollar, described China as "a relative bright spot in an otherwise gloomy global economy".

The real situation and the scale of the economic slowdown in China, however, are underscored by the fact that 4.9 percentage points of the estimated growth will come from a massive government stimulus package. In other words, without the stimulus measures, the predicted growth rate would be just 1.6 percent—compared to 13 percent in 2007.

The World Bank's assumptions about China's $585 billion stimulus package are unlikely to be fulfilled. New state bank lending surged to $147 billion in February, up 24 percent from a year earlier, following a 21.3 percent rise in January. Yet industrial growth continues to slow and private investment is virtually stagnant. Lacking confidence about the future, many firms are using cheap loans to speculate on the stock market. The only growth areas are capital expenditure by large state enterprises and infrastructure spending.

These are all signs that much of China's vast export machine—the main motor for its spectacular economic growth—is rapidly grinding to a halt. In February, despite tax breaks and other government assistance, exports plunged 25.7 percent from a year earlier, far worse than the expected 1 percent growth. Moreover, imports fell by 24.1 percent in February, on top of a 43.1 percent decline in January, indicating that businesses regard economic prospects as bleak and are drastically cutting purchases of machinery, parts and raw materials.

The World Bank projection also assumes that China's export decline bottomed in February and will pick up as the global economy rebounds in the second half of 2009. This is little more than a stab in the dark. In its latest forecast for the world economy in 2009, released this week, the International Monetary Fund predicted a contraction of between 0.5 and 1 percent. For the advanced economies, which are China's main markets, the outlook was worse—an overall fall of between 3 and 3.5 percent. It was the fourth time in less than six months that the IMF has issued downward revisions.

For more than a decade, China has been held up as a shining example of the miracle of the capitalist market, particularly for the so-called emerging economies of Asia, Africa and Latin America. Its rise appeared to be unstoppable. In 2007, it became the third largest economy in the world, behind the US and Japan, with huge trade surpluses and foreign currency reserves.

When the sub-prime crisis hit the US in 2007, Chinese central bank governor Zhou Xiaochuan declared there would be only a "mild effect" on Chinese exports. Last October, as the world financial system appeared on the brink of meltdown, the Financial Times outlined "a master plan" for China to "bailout America" and speculated on the political conditions Beijing might impose.

All this is based, however, on the flawed assumption that "China" functions as an independent economic entity. The Chinese economy is an integral component of the world economy. The globalisation of production over the past three decades transformed the country into a giant cheap labour platform for transnational corporations. A significant portion of China's "exports" simply involves shifting goods geographically within the same company.

On closer inspection, the orgy of financial speculation in the US and the transformation of China into the sweatshop of the world were intimately related—two sides of the same coin. Driven by declining profit rates, US corporations turned to China to cut production costs. In turn, cheap goods from China kept real wages and inflation in the US low and allowed the Federal Reserve to operate a low interest rate regime that was the basis for the vast expansion of speculative profiteering. Consumer debt expanded, maintaining a market for Chinese goods. China's trade surpluses were invested back in the US to prevent the value of the yuan from rising and helped to prop up America's massive debt.

It appeared that the process would go on forever. The US Fed responded to the collapse of each speculative bubble by pumping more money into the financial system, confident that the continuing flow of cheap goods would prevent soaring inflation. Massive profits were made, based on mountains of fictitious capital in the form of exotic financial derivatives and packages. This whole precarious house of cards has now come crashing down.

For China, the collapse has resulted in a disastrous fall in exports as consumer spending in the US and Europe has contracted sharply. And China is not alone. All the export-driven economies of Asia are in the same predicament. The once booming intra-Asia trade, which supplied Chinese factories with components, raw materials and capital goods, is also imploding. Japan, Hong Kong, Taiwan, Singapore and South Korea are all formally in recession.

Now doubts are being raised about China's huge investments in US bonds and other securities. A new study by the US Council on Foreign Relations estimates that China's foreign currency reserves may be as high as $2.4 trillion—with $1.5 to $1.7 trillion held in various dollar assets. Last week, Premier Wen publicly expressed concerns about the security of China's investments if the US dollar dropped. This week, the US Fed compounded those fears with a plan, in essence, to print $300 billion to fund the US debt.

China is caught in a bind. If the US dollar plunges, Beijing faces losses that will destabilise its own financial and banking system. However, if it winds back its US investments, Beijing could trigger a global stampede to dump US assets, with potentially catastrophic consequences for the US and global financial system.

Addressing the National Peoples Congress, China's leaders attempted to put the best possible face on the deepening economic crisis. Wen assured delegates that 8 percent growth was achievable, promoted the regime's stimulus measures and announced new social welfare measures. Everyone present was well aware that anything less than 8 percent would mean rising unemployment and social unrest. Already 20 million rural migrant workers have lost their jobs and a growing army of urban workers, college graduates and demobilised soldiers are unable to find work.

Buried in the budget presented to the NPC was a significant item—a massive increase in spending on public security, by 20.5 percent to more than $71 billion. The figure is larger than China's total military budget of $70.2 billion for 2009. "We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents," Wen blandly told the delegates. The purpose is all too evident—the linchpin of the "Chinese miracle" has been a pervasive police-state apparatus to suppress all criticism, political opposition, protests and strikes.

US, European and Japanese commentators routinely call into question the purpose of China's expanding military spending. None of them had anything to say about the public security budget. It is understood only too well in international financial circles that a social upheaval in China would reverberate around the world—politically and economically.

The move was made in order to ensure that the company was producing products subjected to the government-imposed price controls that aim to protect the poor from the affects of global price rises and inflation.

Under Venezuelan law, companies that can produce basic goods regulated by price controls must guarantee that 70-95% of their products are of the regulated type.

“They’ve refused 100 times to process the typical rice that Venezuelans eat”, said Chavez. “If they don’t take me seriously, I’ll expropriate the plants and turn them into social property.”

Four days later, Chavez announced the expropriation of a rice-processing plant owned by US food giant Cargill after it was revealed the company was attempting to subvert the price controls.

Moving against capital

In the following period, “Venezuela’s National Institute of Lands (INTI) [took] public ownership of more than 5000 hectares of land claimed by wealthy families and multi-national corporations and is reviewing tens of thousands more hectares across the nation”, Venezuelanalysis.com reported on March 11.

This includes the March 5 expropriation of 1500 hectares of a tree farm owned by Ireland’s Smurfit Kappa. The government has pledged to move away from eucalyptus trees, which were drying up the land, and turn the land over to cooperatives for sustainable agriculture.

On March 14, Chavez decreed a new fishing law, banning industrial trawl-fishing within Venezuela’s territorial waters.

“Trawling fishing destroys the sea, destroys marine species and benefits a minority. This is destructive capitalism”, explained Chavez on his weekly TV show, Alo Presidente the following day.

Venezuelanalysis.com reported on March 17 that the government will invest US$32 million to convert or decommission trawling boats, as well as to development fish-processing plants.

“Thirty trawling ships will be expropriated, Chavez said, due to the refusal of their owners to cooperate with the plans to adapt the boats to uses compliant with the new fishing regulations.”

Small-scale fisherpeople will have access to the converted boats.

Anti-crisis measures

This latest wave of radical measures by the Chavez government should be seen in the context of the ongoing process of nationalisations since early 2006, the onset of the global economic and food crises and the February 15 referendum victory.

The government has re-nationalised privatised industries such as electricity, telecommunications and steel. Cement companies, milk producing factories and one of Venezuela’s major banks have either been, ore are in negotiations to be, nationalised.

Unlike the state interventions currently being undertaken in the imperialist centres, the aim of these moves is not to bail out bankrupt capitalists, but to help shift production towards meeting people’s needs — in service provisions (phone lines, electricity, banking) and production of essential goods (concrete, steel for housing and factories, and food).

Last July, the government made strong signals that its next targets would be two strategic sectors previously barely touched — food and finance.

The day after announcing the planned government buyout of Banco de Venezuela (which, once completed, will give the government control over close to 20% of the banking sector), Chavez issued 26 decrees, a number of which increase government and community control over food storage and distribution — and allow the state to jail company owners for hoarding.

Moves aimed at increasing government control over food production come amid soaring world food prices and 30% inflation within Venezuela — which is still dependent on imports for 70% of its food supply.

The government also faces an ongoing campaign of food speculation and hoarding carried out by the capitalist food producers and distributors in order to destabilise the anti-capitalist government.

With oil prices plummeting by almost $100 per barrel from a high of more than US$140 last year, the government is tightening the screws. Oil accounts for 93% of the government’s export revenue and around half of its national budget.

The government has already announced the restructuring of its ministries, merging a number of them in order to cut down on bureaucracy.

The Chavez government is making it very clear that it will be the capitalists, not the people, who will pay for the mess that the capitalist system has created.

“I have entrusted myself with putting the foot down on the accelerator of the revolution, of the social and economic transformation of Venezuela”, Chavez explained on March 8.

Mandate for socialism

These latest moves follow the government’s victory in the February 15 referendum.

Officially, the referendum concerned whether to amend the constitution and remove limits on the number of times elected officials could stand for re-election. At stake was the possibility of Chavez standing for re-election in 2012.

In the context of the intense class struggle, it became a referendum on the socialist project pushed by Chavez.

Addressing tens of thousands of supporters from the balcony of the presidential palace after the victory, Chavez noted that those that had voted “yes” had “voted for socialism, voted for the revolution”.

The referendum was proposed by Chavez as a “counter-offensive” against the opposition following the November 23 regional elections.

Candidates from Chavez’s United Socialist Party of Venezuela (PSUV) won the overwhelming majority of governorships and mayoralties.

However, opposition victories in key states on the Colombian border (where there is growing right-wing paramilitary activity) and the Greater Caracas mayoralty were viewed as important gains for the counter-revolution.

Opposition governors and mayors began to use their new positions to attack community organisations and the pro-poor social missions.

The rapid mobilisation to defeat these attacks by the poor and working people was converted into the formation of 100,000 “Yes committees” to campaign in the referendum, in poor communities, workplaces and universities across the country.

These committees were the backbone of the successful referendum campaign.

Organising for revolution

The latest measures will undoubtedly intensify the class conflict in Venezuela.

An example of this conflict has resulted from the government’s program of land reform, aimed at ending the domination over agriculture by a small minority of large landowners.

Previous attempts by the government to redistribute land have resulted in a violent counter-offensive by large landowners that has resulted in the murder of more than 200 peasants since the land reform law of 2001.

On March 9, land reform activist Mauricio Sanchez was murdered in Zulia, two weeks after campesino activist Nelson Lopez was shot dead in Yaracuy.

Increasingly, trade unionists have also been the target of violent repression when struggling for their rights. On January 29, two workers at Mitsubishi plant were killed by police during an industrial dispute — sparking protests and the arrest of a number of police.

Several peasant organisations are seeking to unite their forces in support of government measures and against repression. The PSUV leadership has also called for a restructuring of the party to better organise the masses for the coming battles.

Launched after Chavez’s 2006 re-election to help accelerate the revolutionary process, the PSUV brought together a range of revolutionary forces as well as opportunist and corrupt layers.

On March 6, the national leadership of the PSUV made public a series of decisions aimed at deepening participation and democracy in the party.

This includes a recruitment drive to sign up new militants, a clean out of the current membership lists, the reactivation of the grassroots socialist battalions and the organisation of an extraordinary congress for August to deepen discussion over the party’s program and principles.

Building on the success of the “yes” campaign, the PSUV will move to consolidate national mass fronts of workers, peasants, women and students — along with converting the “yes committees” into ongoing “socialist committees”.