US Set to Buy up the Pyramids

When Keynes wanted to come up with an example of activity that enables an economy to flourish by requiring the investment of huge amounts of physical labour but without causing the failure of aggregate demand he suggested the Egyptian pyramids. Today, however, Egypt is providing a different kind of lesson that I hope the Egyptian people learn in time: that democracy and indebtedness are not compatible.

Egypt is in the midst of negotiations with the US over the debt of its former regime. Such debt, which enriched Mubarak and his cronies, was one of the causes of the revolution and should now be reupdiated as odious and no longer the responsiblity of the citizens of the newly democratic Egypt. The presence of Christine Lagarde in Cairo offering 'loans' and 'partnership' suggest that this is unlikely to happen, and that Egypt will, like so many countries before it, lose its freedom to an entanglement of foreign debt. The process was begun as soon as Mubarak fell, as reported by Egyptian economist Noha el Shoki in March.

As Nick Dearden of the Jubilee Debt Campaign notes in a recent Guardian blog, the media reports of 'turmoil' in the Middle East are being used to cover the next round of resource theft that will follow the negotiation of dollar loans:

'This allows the US and European governments to portray the $4.8bn IMF loan under negotiation, the "assistance" funds that will shortly start flowing into public-private "partnerships" and free trade zones being planned by the EU, as "gifts" to the Egyptian people. . . . However, many people remain sceptical about the IMF's agenda – privatisation, indirect taxation, removal of subsidies (many of which are corrupt, but some of which do genuinely support the poor) and an economy based around exports. As one government insider said last week: "In Egypt, we call privatisation what it is – stealing." A propaganda campaign aims to convince Egyptians that "there is no alternative".'

The brave Egyptians who spent night after night in Tahrir Square demonstrating for their independence should realise that the battle was only half won. Physical freedom and political freedom mean nothing without financial freedom. Just as we are being subjected to the decimation of our public services to pay off banks and investors whose money was created from thin air, so all the wealth of Egypt will be lost to its people unless they resist the attempt by the IMF and the US to 'lend' it money to finance its development. Tweet

Why is it easier to imagine the end of the world, than to imagine the end of capitalism?

This is the title of a new book published in Czech and it encapsulates an important thought given the extraordinary contortions we are witnessing at the G20 and amongst Eurozone leaders. It has been clear for several years that the money created during the banking boom was produced from thin air and could never be repaid, yet those amongst the elite who nominally hold this value are refusing to relinquish it now that their bubble has burst.

Initially, the extorted money from governments to pour into the debt black holes and maintain the value of their assets. This merely had the consequence of threatining the financial stability of the countries involved, in the case of Greece and possibly Portugal and Spain to the extent of bankrupting those countries. Now that more of the debts are coming home to roost the asset-holders are seeking another round of welfare payments from the 99% who are suffering the austerity cuts their profligacy has caused. No wonder that European capitals are filled with angry demonstrators.

The impasse is the result of a struggle amongst capitalist elites. On the one side we have the US, Christine Lagarde, the US puppet at the IMF, and the UK, the traditional US poodle. This group seeks to maintain the power of the dollar in the global financial system. On the other side the rising economies of China, Brazil, India and Russia are proposing a greater role for the IMF, which should no longer respond solely to US dictat.

Without a strengthening of the IMF bailout fund money must be found from the Eurozone countries to provide money to support European banks when their Greek assets are obliterated, some time later this month. Otherwise some, or perhaps all, the European banks and a large number of its countries, will become bankrupt. If European citizens cannot be persuaded to accept the use of public money in this way, then control of European and US financial institutions may have to be ceded to the sovereign wealth funds of the BRIC economies - the only group capable for finding additional money to invest.

Meanwhile the people of the world are calling time on an economic system that maintains the value of the corrupt assets of a tiny elite while the vast majority of the world's people suffer. The inchoate mass of political opposition camped around the world's capitals is waiting for a political leadership with the courage to proposed a new economic system, and for a media prepared to break the strangledhold of its pro-capitalist owners.
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Two Bald Men Fighting Over a Comb

As we blunder towards another credit crisis, with banks losing confidence in each other and increasingly refusing to accept each other's debt, the inability of politicians to act is extraordinary. This morning's headlines might have read: 'Lagarde says nothing, recommends doing something, not clear what'; 'Osborne demands strongly that something is done'. Tomorrow's headline should read 'Geithner insists on urgent (unspecified) action'.

Everybody is demanding action from everybody else, but all those who apparently have power have given it away and forgotten how to use what they have left. My Ten Point Stabilisation Plan is still available, free of charge, to any who would wish to use it. But while our politicians find themselves incapable of thinking their way around free markets we can expect more blundering and empty performances in the days to come.

While Tim Geithner appears to have no thoughtful content to contribute, the intervention by the US Treasury Secretary adds interest and takes hypocrisy to new heights. Geithner's advice will presumably be to cut public spending harder and faster, this coming from a country whose own debt is so out of control that it threatens to incapacitate the political system entirely.

Thinking back a while we can recall why the Euro was invented in the first place: because the Europeans were tired of the trade advantage the US enjoyed by controlling the world's trading currency. The Euro was intended to compete with this supremacy and become an alternative reserve and trading currency. The US's intervention is thus more evidence of its presumption in favour of its own interest, no matter what the consequences.

But it was no only the Europeans who had grown tired of producing goods for the US and receiving only arrogant pronouncements in return. The Chinese worked their way into such a massive external trade balance that they could buy up the US and have change. Hence their continuing and repeated calls for a neutral trading currency to replace the dollar and the euro. Meanwhile, the growing economies of Latin America and south-east Asia found ways to facilitate mutual trade without using the dollar. The US no longer has anything to support its assumption of a right to tell the rest of the world how to behave.

If this really is a situation of two bald men fighting over a comb it's fairly clear that the comb, like everything else these days, has been made in China, and the Chinese are holding on tight.
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Christine Lagarde: Is She the Man for the Job?

The extraordinary thing about Christine Lagarde is not that she is a woman, but that she is a lawyer. In spite of holding the second highest political office in France, and now the most important position in the global economy, she is not trained in economics and does not have any experience or training as a politician. This leads one to the inevitable question: how has Christine Lagarde reached this position of power?

Lagarde's appointment to the head of the world's bank was not an accountable or transparent process. There was no election, no selection process, no job description. Had there been, she would certainly not have been selected, since she is not qualified. But in the murky process by which the IMF is governed, political influence and having the right connections is far more important than understanding the problem.

The majority of Lagarde's career has been spent with the Chicago-based corporate law firm Baker & McKenzie. Presumably in a drive to undermine the French reputation for a protectionist approach to international economics and to bolster its globalist credentials, she was chosen as Trade Minister of France in 2005. By 2007 she was Minister for Economic Affairs. Her credentials have passed corporate scrutiny, but can she really be expected to carry authority without a proper understanding of how the economy functions?

Christine Lagarde has skilfully used her sex to deflect attention from her lack of suitability and her dubious politics. The titillating headlines about her as the bankers' dominatrix, her Chanel clothes and her synchronised swimming medal should not be allowed to divert us from the fact that, in spite of appearances, the choice of US financiers has determined who will head up the IMF.

As Jayati Ghosh questioned on the Guardian site,

'Would someone like Christine Lagarde be better? [than DSK] Unfortunately, she may even be worse, if her record as France's finance minister is any indication. The irony is that she would pursue, even more enthusiastically, the same self-defeating and economically damaging measures whose only beneficiaries are the German, French, Dutch and British banks.'

Just at the time when radical change is necessary, the world can only expect more of the same from Christine Lagarde.
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