Sunday, January 27, 2013

THINKING IN THE BOX (Elast)

(BEING CONTINUED FROM  12/12/12)

A)The Gold Standard, Deflation, and Financial Crisis in the Great Depression:

2.5 Regression Results

In this section we present empirical results based on our panel data set. The

principal question of interest is the relative importance of various transmission

mechanisms of deflation to output. We also address the question, so far not

discussed, of whether banking crises could have intensified the deflation process

itself.

The basic set of results is contained in table 2.9, which relates the logdifferences

in industrial production for our set of countries to various combinations

of explanatory variables. The definitions of the right-hand-side variables

are as follows:

DlnPW: log-difference of the wholesale price index;

DlnEX: log-difference of nominal exports;

DlnW: log-difference of nominal wage;

DISC: central bank discount rate, measured relative to its 1929 value (a

government bond rate is used for Canada; since no 1929 interest rate

could be found for New Zealand, that country is excluded in regressions

including DISC);

PANIC: a dummy variable, set equal to the number of months during the

year that the country experienced serious banking problems (see below);

AlnMO: log-difference of money and notes in circulation.

Exports are included to control for trade effects on growth, including the

benefits of competitive devaluation discussed by Eichengreen and Sachs

(1986); and the wage is included to test for the real wage channel of transmission

from deflation to depression. Of course, theory says that both of these   variables should enter in real rather than in nominal terms; unfortunately, in  practice the theoretically suggested deflator is not always available (as we  noted in our discussion of the real wage above). 

We resolve this problem by  supposing that the true equation is, for example,

(1) Dln/P = Be (DlnEX - DlnPe,) + Bw (DlnW - DlnPw )+ error

where Pe and Pw, the optimal deflators, are not available. Let the projections

of log-changes in the unobserved deflators on the log-change in the wholesale

price deflator be given by

(2) DlnPi, = ψDlnPW + ui     i=e,w

where the ui are uncorrelated with DlnPW and presumably the ψ, are positive.

Then (1) becomes

(3) ΔlnΙP = - ( βeψe + βwψw)ΔlnPW + βeΔlnEX + βwΔlnW + new error

This suggests allowing ΔlnPW and the nominal growth rates of exports and

wages to enter the equation separately, which is how we proceed.18 Putting

ΔlnPW in the equation separately has the added advantage of allowing us to

account for any additional effect of deflation (such as debt deflation) not explicitly

captured by the other independent variables.

The discount rate DISC is included to allow for the interest rate channel and

as an additional proxy for monetary policy. Since ΔlnPW is included in every

equation, inclusion of the nominal interest rate DISC is equivalent to including

the actual ex post real interest rate, that is, we are effectively assuming

that deflation was fully anticipated; this should give the real interest rate hypothesis

its best chance.

In an attempt to control for fiscal policy, we also included measures of central

government expenditure in our first estimated equations. Since the estimated

coefficients were always negative (the wrong sign), small, and statistically

insignificant, the government expenditure variable is excluded from the

results reported here.

Construction of the dummy variable PANIC required us to make a judgment

about which countries' banking crises were most serious, which we did from

our reading of primary and secondary sources. We dated periods of crisis as

starting from the first severe banking problems; if there was some clear demarcation

point (such as the U.S. bank holiday of 1933), we used that as the

ending date of the crisis; otherwise we arbitrarily assumed that the effects of

the crisis would last for one year after its most intense point. The banking

crises included in the dummy are as follows (see also table 2.7):

1. Austria (May 1931-January 1933): from the Creditanstalt crisis to the

date of official settlement of the Creditanstalt's foreign debt.

2. Belgium (May 1931-April 1932; March 1934-February 1935): for one

year after the initial Belgian crisis, following Creditanstalt, and for one  

year after the failure of the Banque Beige de Travail led to a general

crisis.

3. Estonia (September 1931-August 1932): for one year after the general

banking crisis.

4. France (November 1930-October 1932): for one year following each of

the two peaks of the French banking crises, in November 1930 and October

1931 (see Bouvier 1984).

5. Germany (May 1931-December 1932): from the beginning of the major

German banking crisis until the creation of state institutes for the liquidation

of bad bank debts.

6. Hungary (July 1931-June 1932): for one year following the runs in Budapest

and the bank holiday.

7. Italy (April 1931-December 1932): from the onset of the banking panic

until the takeover of bank assets by a massive new state holding company,

the Istituto por le Riconstruzione Industriale (IRI).

8. Latvia (July 1931-June 1932): for one year following the onset of the

banking crisis.

9. Poland (June 1931-May 1932): for one year following the onset of the

banking crisis.

10. Rumania (July 1931-September 1932): from the onset of the crisis until

one year after its peak in October 1931.

11. United States (December 1930-March 1933): from the failure of the

Bank of the United States until the bank holiday.

The inclusion of Austria, Belgium, Estonia, Germany, Hungary, Latvia,

Poland, Rumania, or the United States in the above list cannot be controversial;

each of these countries suffered serious panics. (One might quibble on

the margin about the exact dating given—for example, Temin [1989] and others

have argued that the U.S. banking crisis did not really begin until mid

1931—but we doubt very much that changes of a few months on these dates

would affect the results.) The inclusion of France and Italy is more controversial.

For example, Bouvier (1984) argues that the French banking crisis was

not as serious as some others, since although there were runs and many banks

failed, the very biggest banks survived; also, according to Bouvier, French

banks were not as closely tied to industry as other banking systems on the

Continent. For Italy, as we have noted, early and massive government intervention

reduced the incidence of panic (see Ciocca and Toniolo 1984); however,

the banks were in very poor condition and (as noted above) eventually

signed over most of their industrial assets to the IRI.

To check the sensitivity of our results, we reestimated the key equations

omitting first the French crisis from the PANIC variable, then the French and

Italian crises. Leaving out France had a minor effect (lowering the coefficient

on PANIC and its f-statistic about 5% in a typical equation); the additional

exclusion of the Italian crisis has essentially no effect.19

As a further check, we also reestimated our key equations omitting, in

separate runs, (i) the United States; (ii) Germany and Austria; and (iii) all

eastern European countries. In none of these equations were our basic results

substantially weakened, which indicates that no single country or small group

of countries is driving our findings.

The first seven equations in table 2.9 are not derived from any single model,

but instead attempt to nest various suggested explanations of the link between

deflation and depression. Estimation was by OLS, which opens up the possibility

of simultaneity bias; however, given our maintained view that the deflation

was imposed by exogenous monetary forces, a case can be made for treating

the right-hand-side variables as exogenous or predetermined.

Note: For variable definitions, see text. The sample period is 1930-36. The panel consists of

twenty-four countries except that, due to missing wage data, Finland, Greece, and Spain are

excluded from equations (5)-(8). Estimates of country-specific dummies are not reported. Standard

errors are in parentheses.

*Export growth is measured in real terms in equation (8).

The principal inferences to be drawn from the first seven rows of table 2.9

are as follows:20

1. Export growth consistently enters the equation for output growth

strongly, with a plausible coefficient and a high level of statistical significance.

2. When wage growth is included in the output equation along with only

wholesale price and export growth (row 5), it enters with the wrong sign.

Only when the PANIC variable is included does nominal wage growth have

the correct (negative) sign (rows 6 and 7). In the equation encompassing all

the various channels (row 7), the estimated coefficient on wage growth is of

the right sign and a reasonable magnitude, but it is not statistically significant.

3. The discount rate enters the encompassing equation (row 7) with the

right sign and a high significance level. A 100-basis-point increase in the discount

rate is estimated to reduce the growth rate of industrial production by

3.6 percentage points.

4. The effect of banking panics on output is large (a year of panic is estimated

in equation (7) to reduce output growth by 12 X .0138, or more than

16 percentage points) and highly statistically significant (f-statistics of 4.0 or

better). The measured effect of the PANIC variable does not seem to depend

much on what other variables are included in the equation.

5. There may be some residual effect of deflation on output not accounted

for by any of these effects. To see this, note that in principle the coefficient on

DlnPW in equation (7) of table 2.9 should be equal to and opposite the

weighted sum of the coefficients on DlnEX, DlnW, and DISC (where the

weights are the projection coefficients of the respective "true" deflators on

DlnPW). Suppose for the sake of illustration that each of the projection coefficients

equals one (that is, the wholesale price index is the correct deflator).

Then the expected value of the coefficient on DlnPW should be approximately

.052; the actual value is .296, with a standard error of .123. Thus there may

be channels relating deflation to depression other than the ones explicitly accounted

for here. One possibility is that we are simply picking up the effects

of a simultaneity bias (a reverse causation from output to prices). Alternatively,

it is possible that an additional factor, such as debt deflation, should be

considered.

As an alternative to the procedure of nesting alternative channels in a single

equation, in equation (8) of table 2.9 we report the results of estimating the

reduced form of a simple aggregate demand-aggregate supply (AD-AS) system.

Under conventional assumptions, in an AD-AS model output growth

should depend on money growth and autonomous spending growth (represented

here by growth in real exports21), which shift the AD curve; and on

nominal wage growth, which shifts the AS curve. In addition, we allow

PANIC to enter the system, since banking panics could in principle affect both

aggregate demand and aggregate supply. The results indicate large and statistically

significant effects on output growth for real export growth, money

growth, and banking panics. Nominal wage growth enters with the correct

sign, but the coefficient is very small and statistically insignificant.

We have so far focused on the effects of banking panics (and other variables)

on output. There is an additional issue that warrants some discussion

here; namely, the possibility that banking panics might have themselves worsened

the deflationary process.

Some care must be taken with this argument. Banking panics undoubtedly

had large effects on the composition of national money supplies, money multipliers,

and money demand. Nevertheless, as has been stressed by Temin

(1989), under a gold standard, small country price levels are determined by

international monetary conditions, to which domestic money supplies and demands

must ultimately adjust. Thus banking panics cannot intensify deflation

in a small country.22 Indeed, a regression (not reported) of changes in wholesale

prices against the PANIC variable and time dummies (in order to isolate

purely cross-sectional effects) confirms that there is very little relationship

between the two variables.

The proposition that bank panics should not affect the price level does not

necessarily hold for a large country, however. In econometric language, under

a gold standard the price level of a large country must be cointegrated with

world prices; but while this means that domestic prices must eventually adjust

to shocks emanating from abroad, it also allows for the possibility that domestic

shocks will influence the world price level. Notice that if banking panics

led to deflationary shocks in a large country and these shocks were transmitted

around the world by the gold standard, a cross-sectional comparison would

find no link between panics and the price level.

The discussion of the gold standard and deflation in section 2.2 cited Hamilton's

(1987) view that the initial deflationary impulses in 1928-29 came

from France and the United States—both "big" countries, in terms of economic

importance and because of their large gold reserves. This early deflation

obviously cannot be blamed on banking panics, since these did not begin

until at least the end of 1930. But it would not be in any way inconsistent with

the theory of the gold standard to hypothesize that banking panics in France

and the United States contributed to world deflation during 1931-32.23

Empirical evidence bearing on this question is presented in table 2.10. We

estimated equations for wholesale price inflation in the United States and

France, using monthly data for the five-year period 1928-32. We included an

error-correction term in both equations to allow for cointegration between the

U.S. and French price levels, as would be implied by the gold standard. This

error-correction term is the difference between the \og-levels of U.S. and

French wholesale prices in period t — 1; if U.S. and French prices are in fact

cointegrated, then the growth rate of U.S. prices should respond negatively to

the difference between the U.S. price and the French price, and the French

growth rate of prices should respond positively. Also included in the equations

are lagged inflation rates (to capture transitory price dynamics), current and

lagged base money growth, and current and lagged values of the deposits of

failing banks (for the United States only, due to data availability).

The results are interesting. First, there is evidence for cointegration: The

error-correction terms have the right signs and reasonable magnitudes, although

only the U.S. term is statistically significant. Thus we may infer that

shocks hitting either French or U.S. prices ultimately affected both price levels.

Second, both U.S. base money growth and bank failures are important

Note: Deposits of failing banks are from the Federal Reserve Bulletin. USAWPI and FRAWPI are

wholesale price indexes for the United States and France, respectively. Monthly data from 1928

to 1932 are used.

determinants of the U.S. (and by extension, the French) deflation rates; these

two variables enter the U.S. price equation with the right sign and marginal

significance levels of .0005.

With respect to the effect of banking panics on the price level, then, the

appropriate conclusion appears to be that countries with banking panics did

not suffer worse deflation than those without panics;24 however, it is possible

that U.S. banking panics in particular were an important source of world deflation

during 1931-32, and thus, by extension, of world depression.

2.6 Conclusion

Monetary and financial arrangements in the interwar period were badly

flawed and were a major source of the fall in real output. Banking panics were

one mechanism through which deflation had its effects on real output, and

panics in the United States may have contributed to the severity of the world

deflation.

In this empirical study, we have focused on the effects of severe banking

panics. We believe it likely, however, that the effects of deflation on the financial

system were not confined to these more extreme episodes. Even in countries

without panics, banks were financially weakened and contracted their  

operations. Domestic debt deflation was probably a factor, to a greater or

lesser degree, in every country. And we have not addressed at all the effect of

deflation on the burden of external debt, which was important for a number of

countries. As we have already suggested, more careful study of these issues is

clearly desirable.

THE END 

Author: Ben Bemanke, Harold JamesConference 

Date: March 22-24,1990

Ben Bemanke is professor of economics and public affairs at Princeton University and a research

associate of the National Bureau of Economic Research. Harold James is assistant professor

of history at Princeton University.

The authors thank

David Fernandez, Mark Griffiths, and Holger Wolf for invaluable research

assistance.

Support was provided by the National Bureau of Economic Research and the National

Science Foundation.

Notes

17. Causality could run in both directions. For example, Wigmore (1987) argues

that the U.S. banking panic in 1933 was in part created by a run on the dollar.

18. It has been pointed out to us that if nominal wages were literally rigid, then this

approach would find no effect for wages even though changes in the real wage might

be an important channel for the effects of deflation. The reply to this is that, if nominal

wages are completely rigid, the hypothesis that real wages are important can never be

distinguished from an alternative which proposes that deflation has its effects in some

other way.

19. In another sensitivity check, we also tried multiplying PANIC times the change

in the deposit-currency ratio, to allow for differential severity of panics. The results

exhibited an outlier problem. When Rumania (which had a change in the depositcurrency

ratio of — .76 in 1931) was excluded, the results were similar to those obtained

using the PANIC variable alone. However, inclusion of Rumania weakened both

the magnitude and statistical significance of the effect of panics on output. The "reason"

for this is that, despite its massive deposit contraction, Rumania experienced a

5% growth of industrial production in 1931. Whether this is a strong contradiction of

the view that panics affect real output is not clear, however, since according to the

League of Nations the peak of the Rumania crisis did not occur until September or

October, and industrial production in the subsequent year fell by 14%. Another reason

to downplay these results is that the change in the deposit-currency ratio may not be a

good indicator of the severity of the banking crisis, as the Italian case indicates.

20. Results were unchanged when lagged industrial production growth was added

to the equations. The coefficient on lagged production was typically small and statistically

insignificant.

21. Deflation is by the wholesale price index.

22. A possible exception to this proposition for a small country might be a situation

in which there are fears that the country will devalue or abandon gold; in this case the

country's price level might drop below the world level without causing inflows of reserves.

An example may be Poland in 1932. A member of the Gold Bloc, Poland's

wholesale price level closely tracked that of France until mid 1931, when Poland experienced

severe banking problems and withdrawals of foreign deposits, which threatened

convertibility. From that point on, even though both countries remained on the

gold standard, money supplies and prices in Poland and France began to diverge. From

the time of the Polish crisis in June 1931 until the end of 1932, money and notes and

circulation dropped by 9.1% in Poland (compared to a gain of 10.5% in France); Polish

commercial bank deposits fell 24.5% (compared to a 4.1% decline in France); and

Polish wholesale prices declined 35.2% (compared to a decline of 18.3% in France).

Despite its greater deflation, Poland lost about a sixth of its gold reserves in 1932,

while France gained gold.

23. This hypothesis does not bear on Temin's claim that there was little that central

banks could do about banking crises under the gold standard; rather, the argument is

that if, fortuitously, French and U.S. banking panics had not occurred, world deflation

in 1931-32 would have been less severe.

24. Indeed, if banking panics induced countries to abandon gold, they may have

indirectly contributed to an eventual rise in price levels.

References

Bernanke, Ben. 1983. Non-monetary effects of the financial crisis in the propagation

of the Great Depression. American Economic Review 73: 257-76.

. 1986. Employment, hours, and earnings in the Depression: An analysis of

eight manufacturing industries. American Economic Review 76: 82-109.

Bernanke, Ben, and Mark Gertler. 1990. Financial fragility and economic performance.

Quarterly Journal of Economics 105: 87-114.

Board of Governors of the Federal Reserve System. 1943. Banking and monetary statistics,
1919-41. Washington, DC: Government Printing Office.
Borchardt, Knut. 1979. Zwangslagen und Handlungsspielraume in der grossen Wirtschaftskrise
der fruhen dreissiger Jahren: Zur Revision des uberlieferten Geschichtesbildes.
Jahrbuch der Bayerische Akademie der Wissenschaften, 87-132. Munich.
Bordo, Michael, and Finn Kydland. 1990. The gold standard as a rule. Typescript,
Rutgers University and Carnegie-Mellon University.
Bouvier, Jean. 1984. The French banks, inflation and the economic crisis, 1919-1939.
Journal of European Economic History 13: 29-80.
Campa, Jose Manuel. Forthcoming. Exchange rates and economic recovery in the
1930s: An extension to Latin America. Journal of Economic History.
Choudhri, Ehsan U., and Levis A. Kochin. 1980. The exchange rate and the international
transmission of business cycle disturbances: Some evidence from the Great
Depression. Journal of Money, Credit, and Banking 12: 565-74.
Ciocca, Pierluigi, and Gianni Toniolo. 1984. Industry and finance in Italy, 1918-40.
Journal of European Economic History 13: 113-36.
Eichengreen, Barry. 1986. The Bank of France and the sterilization of gold, 1926-
1932. Explorations in Economic History 23: 56-84.
. 1987. The gold-exchange standard and the Great Depression. Working Paper
no. 2198 (March). Cambridge, Mass.: National Bureau of Economic Research.
Eichengreen, Barry, and T. J. Hatton. 1987. Interwar unemployment in international
perspective: An overview. In Interwar unemployment in international perspective,
ed. B. Eichengreen andT. J. Hatton, 1-59. Boston: Kluwer Academic Publishers.
Eichengreen, Barry, and Richard Portes. 1986. Debt and default in the 1930s: Causes
and consequences. European Economic Review 30: 599-640.
Eichengreen, Barry, and Jeffrey Sachs. 1985. Exchange rates and economic recovery
in the 1930s. Journal of Economic History 45: 925-46.
. 1986. Competitive devaluation in the Great Depression: A theoretical reassessment.
Economic Letters 21: 67-71.
Einzig, Paul. 1937. The theory of forward exchange. London: Macmillan.
Fisher, Irving. 1933. The debt-deflation theory of great depressions. Econometrica 1:
337-57.
Flood, Robert P., Jr., and Peter M. Garber. 1981. A systematic banking collapse in a
perfect foresight world. NBER Working Paper no. 691 (June). Cambridge, Mass.:
National Bureau of Economic Research.
Friedman, Milton, and Anna J. Schwartz. 1963. A monetary history of the United
States, 1867-1960. Princeton: Princeton University Press.
Haberler, Gottfried. 1976. The world economy, money, and the Great Depression.
Washington, DC: American Enterprise Institute.
Hamilton, James. 1987. Monetary factors in the Great Depression. Journal of Monetary
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B)Why the U.S. Has Launched a New Financial World War -- and How the Rest of the World Will Fight Back

By August 1971, war spending in Vietnam and other foreign countries forced the United States to suspend gold convertibility of the dollar through sales via the London Gold Pool. But largely by inertia, central banks continued to settle their payments balances in U.S. Treasury securities. After all, there was no other asset in sufficient supply to form the basis for central bank monetary reserves. But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. And geopolitically, the Treasury-bill standard made the United States immune from the traditional balance-of-payments and financial constraints, enabling its capital markets to become more highly debt-leveraged and “innovative.” It also enabled the U.S. Government to wage foreign policy and military campaigns without much regard for the balance of payments.

The problem is that the supply of dollar credit has become potentially infinite. The “dollar glut” has grown in proportion to the U.S. payments deficit. Growth in central bank reserves and sovereign-country funds has taken the form of recycling of dollar inflows into new purchases of U.S. Treasury securities – thereby making foreign central banks (and taxpayers) responsible for financing most of the U.S. federal budget deficit. The fact that this deficit is largely military in nature – for purposes that many foreign voters oppose – makes this lock-in particularly galling. So it hardly is surprising that foreign countries are seeking an alternative.

Contrary to most public media posturing, the U.S. payments deficit – and hence, other countries’ payments surpluses – is not primarily a trade deficit. Foreign military spending has accelerated despite the Cold War ending with dissolution of the Soviet Union in 1991. Even more important has been rising capital outflows from the United States. Banks lent to foreign governments from Third World countries, to other deficit countries to cover their national payments deficits, to private borrowers to buy the foreign infrastructure being privatized, foreign stocks and bonds, and to arbitrageurs to borrow at a low interest rate to buy higher-yielding securities abroad.

The corollary is that other countries’ balance-of-payments surpluses do not stem primarily from trade relations, but from financial speculation and a spillover of U.S. global military spending. Under these conditions the maneuvering for quick returns by banks and their arbitrage customers is distorting exchange rates for international trade. U.S. “quantitative easing” is coming to be perceived as a euphemism for a predatory financial attack on the rest of the world. Trade and currency stability are part of the “collateral damage” being caused by the Federal Reserve and Treasury flooding the economy with liquidity in their attempt to re-inflate U.S. asset prices. Faced with U.S. quantitative easing flooding the economy with reserves to “save the banks” from negative equity, all countries are obliged to act as “currency manipulators.” So much money is made by purely financial speculation that “real” economies are being destroyed.

The coming capital controls

The global financial system is being broken up as U.S. monetary officials change the rules they laid down nearly half a century ago. Prior to the United States going off gold in 1971, nobody dreamed that an economy – especially the United States – would create unlimited credit on computer keyboards and not see its currency plunge. But that is what happens under the Treasury-bill standard of international finance. Under this condition, foreign countries can prevent their currencies from rising against the dollar (thereby pricing their labor and exports out of foreign markets) only by (1) recycling dollar inflows into U.S. Treasury securities, (2) by imposing capital controls, or (3) by avoiding use of the dollar or other currencies used by financial speculators in economies promoting “quantitative easing.”

Malaysia successfully used capital controls during the 1997 Asian Crisis to prevent short-sellers from covering their bets. This confronted speculators with a short squeeze that George Soros says made him lose money on the attempted raid. Other countries are now reviewing how to impose capital controls to protect themselves from the tsunami of credit from flowing into their currencies and buying up their assets – along with gold and other commodities that are turning into vehicles for speculation rather than actual use in production. Brazil took a modest step along this path by using tax policy rather than outright capital controls when it taxed foreign buyers of its bonds last week.

If other nations take this route, it will reverse the policy of open and unprotected capital markets adopted after World War II. This trend threatens to lead to the kind of international monetary practice found from the 1930s into the ‘50s: dual exchange rates, one for financial movements and another for trade. It probably would mean replacing the IMF, World Bank and WTO with a new set of institutions, isolating U.S., British and Eurozone representation.

To defend itself, the IMF is proposing to act as a “central bank” creating what was called “paper gold” in the late 1960s – artificial credit in the form of Special Drawing Rights (SDRs). However, other countries already have complained that voting control remains dominated by the major promoters of arbitrage speculation – the United States, Britain and Eurozone. And the IMF’s Articles of Agreement prevent countries from protecting themselves, characterizing this as “interfering” with “open capital markets.” So the impasse reached this weekend appears to be permanent. As one report summarized matters: “‘There is only one obstacle, which is the agreement of the members,’ said a frustrated  Kahn .”

Paul Martin, the former Canadian prime minister who helped create the G20 after the 1997-1998 Asian financial crisis, said “said the big powers were largely immune to being named andshamed.” And in a Financial Times interview Mohamed El Erian, a former senior IMF official and now chief executive of Pimco  said, “You have a burst pipe behind the wall and the water is coming out. You have to fix the pipe, not just patch the wall.”

The BRIC countries are simply creating their own parallel system. In September, China  supported a Russian proposal to start direct trading between the yuan and the ruble. It has brokered a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, October 8, Chinese Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the U.S. dollar. “We are forming an economic strategic partnership … In all of our relations, we have agreed to use the lira and yuan,” Mr. Erdogan said.

On the deepest economic lane, the present global financial breakdown is part of the price to be paid for the Federal Reserve and U.S. Treasury refusing to accept a prime axiom of banking: Debts that cannot be paid, won’t be. They tried to “save” the banking system from debt write-downs in 2008 by keeping the debt overhead in place. The resulting repayment burden continues to shrink the U.S. economy, while the Fed’s way to help the banks “earn their way out of negative equity” has been to fuel a flood of international financial speculation. Faced with normalizing world trade or providing opportunities for predatory finance, the U.S. and Britain have thrown their weigh behind the latter. Targeted economies understandably seeking alternative arrangements.

THE END

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

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Thursday, January 17, 2013

MEDITERRANEAN A GEOPOLITICALLY IMPORTANT SEA

NATO funding, arming, while simultaneously fighting Al Qaeda from Mali to Syria

A deluge of articles have been quickly put into circulation defending France’s military intervention in the African nation of Mali. TIME’s article, “The Crisis in Mali: Will French Intervention Stop the Islamist Advance?” decides that old tricks are the best tricks, and elects the tiresome “War on Terror” narrative.TIME claims the intervention seeks to stop “Islamist” terrorists from overrunning both Africa and all of Europe. Specifically, the article states:

“…there is a (probably well-founded) fear in France that a radical Islamist Mali threatens France most of all, since most of the Islamists are French speakers and many have relatives in France. (Intelligence sources in Paris have told TIME that they’ve identified aspiring jihadis leaving France for northern Mali to train and fight.) Al-Qaeda in Islamic Maghreb (AQIM), one of the three groups that make up the Malian Islamist alliance and which provides much of the leadership, has also designated France — the representative of Western power in the region — as a prime target for attack.”

What TIME elects not to tell readers is that Al-Qaeda in the Islamic Maghreb (AQIM) is closely allied to the Libyan Islamic Fighting Group (LIFG whom France intervened on behalf of during NATO’s 2011 proxy-invasion of Libya – providing weapons, training, special forces and even aircraft to support them in the overthrow of Libya’s government.

As far back as August of 2011, Bruce Riedel out of the corporate-financier funded think-tank, the Brookings Institution, wrote “Algeria will be next to fall,” where he gleefully predicted success in Libya would embolden radical elements in Algeria, in particular AQIM. Between extremist violence and the prospect of French airstrikes, Riedel hoped to see the fall of the Algerian government. Ironically Riedel noted:

Algeria has expressed particular concern that the unrest in Libya could lead to the development of a major safe haven and sanctuary for al-Qaeda and other extremist jihadis.

And thanks to NATO, that is exactly what Libya has become – a Western sponsored sanctuary for Al-Qaeda. AQIM’s headway in northern Mali and now French involvement will see the conflict inevitably spill over into Algeria. It should be noted that Riedel is a co-author of “Which Path to Persia?” which openly conspires to arm yet another US State Department-listed terrorist organization (list as #28), the Mujahedin-e Khalq (MEK) to wreak havoc across Iran and help collapse the government there – illustrating a pattern of using clearly terroristic organizations, even those listed as so by the US State Department, to carry out US foreign policy.Geopolitical analyst Pepe Escobar noted a more direct connection between LIFG and AQIM in an Asia Times piece titled, “How al-Qaeda got to rule in Tripoli:”

“Crucially, still in 2007, then al-Qaeda’s number two, Zawahiri, officially announced the merger between the LIFG and al-Qaeda in the Islamic Mahgreb (AQIM). So, for all practical purposes, since then, LIFG/AQIM have been one and the same – and Belhaj was/is its emir. “

“Belhaj,” referring to Hakim Abdul Belhaj, leader of LIFG in Libya, led with NATO support, arms, funding, and diplomatic recognition, the overthrowing of Muammar Qaddafi and has now plunged the nation into unending racist and tribal, genocidal infighting. This intervention has also seen the rebellion’s epicenter of Benghazi peeling off from Tripoli as a semi-autonomous “Terror-Emirate.” Belhaj’s latest campaign has shifted to Syria where he was admittedly on the Turkish-Syrian border  pledging weapons, money, and fighters to the so-called “Free Syrian Army,” again, under the auspices of NATO support.

Image: NATO’s intervention in Libya has resurrected listed-terrorist organization and Al Qaeda affiliate, LIFG. It had previously fought in Iraq and Afghanistan, and now has fighters, cash and weapons, all courtesy of NATO, spreading as far west as Mali, and as far east as Syria. The feared “global Caliphate” Neo-Cons have been scaring Western children with for a decade is now taking shape via US-Saudi, Israeli, and Qatari machinations, not “Islam.” In fact, real Muslims have paid the highest price in fighting this real “war against Western-funded terrorism.”

….

LIFG, which with French arms, cash, and diplomatic support, is now invading northern Syria on behalf of NATO’s attempted regime change there, officially merged with Al Qaeda in 2007 according to the US Army’s West Point Combating Terrorism Center (CTC). According to the CTC, AQIM and LIFG share not only ideological goals, but strategic and even tactical objectives. The weapons LIFG received most certainly made their way into the hands of AQIM on their way through the porous borders of the Sahara Desert and into northern Mali.

In fact, ABC News reported in their article, “Al Qaeda Terror Group: We ‘Benefit From’ Libyan Weapons,” that:

A leading member of an al Qaeda-affiliated terror group indicated the organization may have acquired some of the thousands of powerful weapons that went missing in the chaos of the Libyan uprising, stoking long-held fears of Western officials.”We have been one of the main beneficiaries of the revolutions in the Arab world,” Mokhtar Belmokhtar, a leader of the north Africa-based al Qaeda in the Islamic Maghreb [AQIM], told the Mauritanian news agency ANI Wednesday. “As for our benefiting from the [Libyan] weapons, this is a natural thing in these kinds of circumstances.”

It is no coincidence that as the Libyan conflict was drawing to a conclusion, conflict erupted in northern Mali. It is part of a premeditated geopolitical reordering that began with toppling Libya, and since then, using it as a springboard for invading other targeted nations, including Mali, Algeria, and Syria with heavily armed, NATO-funded and aided terrorists.

French involvement may drive AQIM and its affiliates out of northern Mali, but they are almost sure to end up in Algeria, most likely by design.

Algeria was able to balk subversion during the early phases of the US-engineered “Arab Spring” in 2011, but it surely has not escaped the attention of the West who is in the midst of transforming a region stretching from Africa to Beijing and Moscow’s doorsteps – and in a fit of geopolitical schizophrenia – using terrorists both as a casus belli to invade and as an inexhaustible mercenary force to do it.

By Tony Cartalucci

Politics and Religion in Iraq and Syria: What is the Ba’ath Party?

The Ba’ath Party was made famous in the West by the late Iraqi dictator and one-time ally of the United States Saddam Hussein[1]. It is largely regarded in the West as something to be associated with the most “evil of evils” since the 1991 Gulf War.

As NATO/GCC backed mercenaries and ultra-conservative Islamic militias battle the Government of Bashar al-Assad in Syria, the Ba’ath Party is once more a phrase that is popping up in the Western mainstream media, mentioned in the kind of tones one would associate with when referring to Nazi Germany. But what exactly is the Ba’ath Party? How did it start? What does it actually stand for? And why are Western media consumers nagged into blind opposition against it by their leaders and the mainstream media?

The Ba’ath Party began in Syria in April 1947, formed by the merging of Michel Aflaq and Salah al-Din al-Bitar’s Arab Ba’ath Movement and Zaki al-Arsuzi’s Arab Ba’ath. The newly formed Party’s objectives were secularism, socialism, and pan-Arab unification, as well as freedom from Western influence.[2] To that end, the Party was influential in securing independence for Syria from France, and took control of the country in 1963, holding it ever since. However, all was not plain sailing for the Party in the early days, with bitter in-fighting between progressive elements and those of a more nationalist flavour. Eventually, the nationalists won control, bringing the al-Assads to power.

In July 1968, Ahmad Hassan al-Bakr, predecessor to Saddam Hussein, led the Ba’ath Party to victory in a bloodless coup in Iraq. The Party ruled Iraq until Hussein’s overthrow by the United States and its Coalition of the Willing in 2003 under the pretext that Saddam Hussein was involved in the September 11 2001 attacks on the US, that he had weapons of mass destruction, that he was ready to use them and could do so in forty five minutes, and various other excuses that, at best, have turned out to be outright lies.

After Hussein’s regime was toppled by the Coalition, the Ba’ath Party was outlawed in Iraq, an act which some suggest helped fuel Sunni elements of the insurgency that followed.

And now, it seems, decision-makers in the West have decided that it is the turn of Syria’s Ba’athists to fall. While many could look at Iraq and say with great confidence that Iraq was a resource grab targeting Iraq’s oil, as well as a money making exercise for mercenary companies, arms manufacturers, mega-corporations like Halliburton and its subsidiaries, and the banking cartels, Syria is different. Syria produces oil, yes, but nowhere near the scale that Iraq does.

Syria’s closeness with Iran and Lebanon’s Hezbollah will obviously stand out as a reason why the US, Israel, the EU, and the GCC want Assad’s government gone. But factoring in the Ba’ath Party’s three objectives of secularism, socialism, and pan-Arab unification, we see more ideological reasons, as well as the motivation for the militias operating under the Al Qaeda and Muslim Brotherhood umbrellas.

Starting with pan-Arab unification, one is reminded of the line “united we stand, divided we fall”. A united Arab people is an idea that is utterly intolerable to the colonialists of the West, who rely on division and playing indigenous peoples off against each other to get their way in the region, allowing the blood to flow while they go about their business.

A fine example of this can be found in the incident in 2005, when heavily armed British SAS soldiers were captured in Basra, Iraq, after shooting at police officers while dressed as locals.[3] It appears that the British were hoping to provoke a response from locals who would blame their particular demographic’s main ‘rival’ demographic and seek revenge. And with the West’s propensity for false flag attacks, one may well ask just how many of the countless bombings, shootings, and similar atrocities that the Iraqi populace suffered – and are still suffering today – were in fact the responsibility of covert Western agents playing the divide and conquer game.

Socialism is obviously not something the West’s capitalist masters will tolerate. Great effort has been made to nullify the threat that ‘socialism’ poses to the current paradigm in the West, as we can see with centre-left mainstream parties in Britain, France and so on becoming centre-left in name only, their policies and actions undermining their marketing. Grass roots left-wing political organisations are largely marginalised in the national political discourses of the major powers of NATO. Western media outlets tailored to consumers of a conservative bent spend a lot of time and effort scaremongering over socialism.

Leftist, socialist, communist, Maoist, Marxist, Leninist, and so on are phrases that are used to induce negative responses and as shortcuts to winning public debates by conservatives, regardless of the differences in actual meaning between the terms. Many conservatives in the West, particularly in the United States, equate the word socialism with the spectre of the Soviet Union, its mere utterance enough to cause many over a certain age flashbacks of the Cold War.

And then there is secularism, an idea abhorrent to Saudi Arabia and the US client-emirates, as well as the ultra-conservative Islamic groups, such as the Muslim Brotherhood, who dominate the rebel movement in Syria.[4] Saudi Arabia is one of the foremost exporters of radical Islamic ideology in the world, and has a human rights record that makes medieval Europe look positively progressive in nature.

Meanwhile, Western leaders are happy for ignorance to flourish at home, and with many media consumers in the NATO bloc mistakenly assuming that all Arabs are Muslim, it may come as a surprise to many that among the founders of the Ba’ath party, Michel Aflaq was actually Greek Orthodox Christian, while al-Bitar was Sunni Muslim, and al-Arsuzi was an Alawite. This same ignorance is what allows Israel to portray its systematic violence against the Palestinians as defending Judaism against Islam to Western audiences. You will rarely hear about secular and Christian Palestinians, and even less the Druze, from the mainstream media.

As it has often been said, it does not serve the governments of the West to have an informed public who may actually question the official narrative that they are fed by the vast propaganda/infotainment machine of the US and Europe if they knew a little more about the history and the motivations behind world events.

And while the primary motivation behind the attempt to topple the Ba’ath Party in Syria may be for the strategic benefit of the Israelis and the US in their quest against Iran, there are other motivating factors that should not be ignored, for they help us to see a more complete picture.

Notes

1. http://www.smh.com.au/articles/2002/08/18/1029114048796.html
2. http://www.infoplease.com/encyclopedia/history/baath-party.html
3. http://www.globalresearch.ca/british-uncover-operation-in-basra-agents-provocateurs/990
4. http://www.globalresearch.ca/unmasking-the-muslim-brotherhood-syria-egypt-and-beyond/5315406

By Jason Langley

source globalresearch canada

Labels: geopolicy

posted by The visioner @ 1:12 PM 0 comments

Tuesday, January 08, 2013

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