Tag Archives: International Monetary Fund

The Coup of The Banks

January 20th 1981 marked the beginning of an era; an era of neo-liberalism. Market fundamentalism is an extreme comparable only to communist command economies yet it was happily implemented by the Reagan administration justified by increasing efficiency and consumer benefits. Taxes and regulations were cut together with the Economic Recovery Tax Act which was implemented in order to recover the recession which his ideological compatriot Paul Volcker agreed with and even increased interest rates to double digits. Yet like market fundamentalism’s communist counterpart the reality is inefficiency through the increase in the periodicity of economic downturn, which was realized in 1989 when restrictions to S&Ls were re-imposed through the FIRREA.

The Economic Recovery Tax Act is in fact quiet interesting and contradictory. It cut the marginal tax rate from 70% to 28% and reduced the capital gains tax to 20%. Yet social security was going bankrupt, so Reagan eventually would increase taxes on the working poor and middle class, he would race payroll tax. This was the beginning of the class warfare of the financial capitalist class on the poor.

Classical economic policies spread across the world and institutions such as the IMF and the WTO were setup to ensure the spread of the teachings of “The Wealth of Nations”. These organizations are centered around the Washington Doctrine and impose them with ideological dogma like the communist’s insistence on collectivization at any cost. Yet capital market liberalization has been an act of suicide as we have seen first in South East Asia and Russia in the late 1990s but also for its own exporters as we have seen with the recent crisis in which southern Europe has been plunged in fiscal crisis which is now threatening the north. Capital market liberalization allows short term and speculative capital investments to occur which are harmful to the stability of the economy as it causes excessive inflation.

But what allowed this policy-making to occur? It was a coup, perhaps even a revolution of the financial sector or more specifically the banks. The Fortune predicted two months before the presidential election that Wall Streets campaign donations would surpass 170 million dollars which is the highest in history. Essentially the banks are buying politicians as they did with Reagan in 1980 in order to implement supply-sided economics and capital market liberalization so that more money could be concentrated in their own hands.

Yet the spontaneous coup was not only limited to the political arena but also in the media which convinced and still convinces that trickle down policies are legitimate. If you watch BBC or CNN news network the commercial breaks are filled with various commercial banks and investment banks and their cheesy advertisements, but the banks are not depended on CNN or BBC they make enough money, CNN and BBC are depended on the banks for a chunky amount of their revenue comes from advertisement. This way the BBC and CNN are forced to bring on Reaganites and economist from the Chicago school to criticize rational political economy and praise Reagan trickle down policies. And so this market fundemantalist dogma has persuaded the public just like communist propaganda.

Perhaps this is a social revolution- a change the social relations by the alteration of the forces of production-according the dialectical materialism. Maybe its a transitional stage into a new mode of economy or super structure where the means of production are owned by another class, a class of lenders and investors; the banks. This however is perhaps a silly thesis because it first of all makes little sense in marxist terms in which the theory is derived from.

On a more serious notion we must look at the effects of the coup and the effects of neo-liberalism which are unfortunate, in fact the results of market fundementalism are much more detremental than post-Stalinist policies in the U.S.S.R. In fact before the market liberalization imposed on Russia by the IMF it was a Second World country, now it is undoubtedly a Third. Similarly the IMF imposed policies in favor of the banks dictated by the Washington Doctrine in Asia in the 90s and Europe in 2008 when entire financial systems collapsed-yet magazines like The Economist still call for capital market liberalization.

The development is alarming; it is centralizing the political spectrum and limiting our democracy through false claims of prosperity. The banks are essentially taking over government by controlling politics and the media and are making Europe and the US-like Noam Chomsky says-”commit suicide”.

Sustainability

middle class too big to fail

middle class too big to fail (Photo credit: Vince_Lamb)

The problem of sustainability rests in modern capitalism itself. Since 1990 atleast one region of the world has been in recession or economic downturn. This is the cause of the market forces placing increasing financial pressure on middle class, working class, students, public workers, and in essence any member of society who are not members of the economic and political elite. These are the owners of banks which are “too large to fail“, receiving billions in bail outs and billions of cheap loans from the Federal Reserve’s measures like quantative easing.

All of this is occurring while governments in the EU and the United States are initatiating cruel austerity measures including pension and salary cuts as well as cutbacks on public services such as healthcare, education and transportation. In the USA the Congress will meet a dilemma from the fiscal cliff, when the bush era tax cuts expire and income as well as payroll tax will increase substantially, while also cutting social security funds. In my view, if capitol will not alleviate the effects of the fiscal cliff it will cause the end of capitalism as we know it.

Instead of a wall street and capital based capitalism in which the economic and politcal elite are deeply intertwined we will see a liberalisation of politics and an increasingly egalitarian and democratic market structure in which trade unions and workers have larger influences over the economic structure than at the present structure. An economy based on production not financial transactions, where the economy is democratically organized by workers, engineers and managers through enterprises; not through top-down power based corporations where the largest shareholder have the most power resulting in economic oligarchy and centralization. We need a decentralized economy and decentralized politcal system in which communities provide social services and determine tax rates, not the federal state who has less of an idea of the local needs.

Freer and fairer trade must also be assured, markets should not be restricted by Reagenite protectionism which is harming global growth and development in the regions with the greatest need in freer and fairer trade. Not a free trade based on WTO, IMF or WB in which the region’s sovreignity and local needs are rejecied. These organizations are opting for an unethical neo-liberal strategy improving the economic imperialism of the protectionist west while limiting potential growth in the underdeveloped areas and sometimes even causing further poverty like in Mexico.

This is my vision for a sustainable and more equal future for the next generations. I am of course an idealist, and these reforms should not happen over night, in fact maybe not even during my own life time, but this should be the direction for which we should lead the economic system, from wall street style elitism to a more democratic and egalitarian economic system providing sustainability for all.