“Debt economy” in the global dimension

“Debt economy” in countries of Western Europe and Japan

The usurers have to permanently build a debt pyramid, as such building creates the demand on the “building material” which is called by “money”. The debt buildup began at the principal centers of capitalism (Great Britain, Germany, France, USA etc.), it went and goes on in three main directions: the national debt; the bank and company debts; household debts. We have already spoken about the “debt economy” of Great Britain and USA. But “economies” of other countries of West (including Japan) have appeared not less “debt economies”.

As we know, in due time, the countries of Western Europe composing the European Union assured emphatically that they would struggle resolutely against the practice of financing of the government expenditures due to the budget deficits.

The limiting value of the budget deficits for the EU member countries was determined in 3 % of the gross domestic product value a runway (Maastricht Treaty 1992). Today, already all countries have overcome this “red line”, and some of them did it long ago. In 2009, according to the preliminary estimate, the budget deficit of Greece made up 12.7 % of the gross domestic product, and the country at the end of that year appeared close to default. Under the forecasts, in next 2010 the budget deficit in Germany is going to be 6 % of the gross domestic product, in France - 8 %, in Spain - 10 %, in Great Britain and Ireland - 14 %.

Also long ago, the EU countries overcame the “red line” of the national debt which was specified in 60 % of the gross domestic product. Under the forecasts of Deutsche Bank Research, in Germany the national debt will make up 80 % of the gross domestic product, France - 87 %, Great Britain - 89 %, and in Italy - 127 %. In the “golden billion” countries, Japan became the leader of the relative level of the national debt long ago; and in 2010 the level will reach a record mark 200 %.

Credit attack of the usurers to the “Third World” countries

As year by year, it is getting more and more complicated to build over the debt pyramid within the framework of individual developed countries, the usurers began heightened activity for another direction - creation of debt in the countries beyond the main centers of capitalism. Let's call these countries by “peripherals of the world capitalism” (PWC). Today, developing countries (“Third World” countries) and former socialist countries enter the category of the PWC countries which are often called by countries with “transitional economy”.

The usurers have to carry out the great “preparatory” work in these countries to create demand for commodity of the “greenback machine”, i.e. the credits of economically developed countries. First of all, to build up in the PWC countries such “economies” which permanently have not enough money. For this purpose, in this group of countries it is necessary to carry out applicable “reforms” of their “economies” and monetary systems, and it is desirable to do in the spirit of the M. Freedman monetarism and provisions of the Washington Consensus (a peculiar manifest of liberalization of the “economy” developed by American and in general western “professional economists” and intended for use in the PWC countries).

Unconditionally, for creation of the demand for money beyond the centers of capitalism, they continue to use also conventional methods approved and improved over centuries. The most important of them is provocation of armed conflicts and wars between individual countries that whirls upward the demand for credits and makes the clients of usurers (states at war) be very compliant, ready for any conditions of the usurers.

Some people (not only ordinary people but also those who is engaged in the politics, journalism, teaching at universities etc.) misunderstand the fact, that the “rich” countries issue loans to the PWC countries, “depriving” themselves of the most essential, making a definite sacrifice and showing “mercy” to the millions of disadvantaged population in the “Third World” countries. This “help” looks especially touchingly on the background of deficits of the state budgets of developed countries which should testify that the “rich” countries themselves have not enough money.

In this connection, M. Rowbotham, an English economist writes:
“It may be surprising how the richest countries can, taking into account their money deficits, issue loans to developing countries. The answer is the fact that they do not issue. The money transferred to the Third World countries is not money which they borrow from rich nations; it is not money to be lent at all; it is money which is created like that how it happens in case of origin of debts in any economy. It also is the true reason of the Third World debt. Their debt is a part of the world supply of money….”

Further M. Rowbotham writes about the credit activity of international financial institutions:
“The World Bank does not work like an ordinary bank. The World Bank mobilizes money by means of issue and sale of bonds to commercial banks in the money world markets. The money mobilized in this way then is issued to developing countries as loans. The IMF presents itself as a certain financial pool, international reserve of money formed at the expense of fees (known as quotas) by subscription among countries. 25 % of a fee of every country is realized as gold, the rest - as the country currency. However, the IMF general funds were considerably increased, and its status and functions were considerably modified when in 1979 the IMF introduced the so-called SDR - the special drawing rights. They should have performed a function of extra international currency. However, though the fund transfers the SDR to the country account, then, when the nation borrows these SDR, it (country) has to pay off the debts in the same SDR, or in their equivalent (originally 1 SDR = 1 US dollar), or to pay interests on the loans issued in the SDR. It already becomes quite apparent that the IMF and the World Bank lend money but they are involved in the process of money generation (italicized by me – V.K.). It is especially visible in case of the IMF and its currency SDR. Though they say about them (SDR) as about the sums which are issued in the form of loans to countries, no money or credits are not transferred to the accounts of nations. The SDR are actually a credit instrument like, for example, a bank overdraft - if they are borrowed, they should be returned. So, the IMF is as-if created by itself, and issues in the form of loans significant sums of new currency expressed in dollar equivalents and convertible into all national currencies. Therefore, the Fund creates and emits money in the form of debt within the framework of the system very similar to the system of an ordinary bank - its “reserve” is a primary pool of means transferred as quotas.

The World Bank also creates money through emission of its bonds. The bank itself does not create money, but commercial banks which buy the bonds of the World Bank practically create money.

To evaluate in full the uniqueness of the IMF and World Bank activity, it is necessary to pay attention to the details connected to creation of money, as well as to track the path of this international debt money movement. Once again we will accent that commercial banks buy emitted by the World Bank bonds in exchange for deposits… The definite amount of money – numbers usually denominated in dollars is transferred to the accounts of the World Bank. No physical and legal persons, who at the moment are these commercial bank depositors, experience the consequences of this operation: the amount of these persons` deposits in the banks remains the same! Therefore, the loan of the World Bank means creation of an extra volume of money. The World Bank issues a loan to a nation, and that causes the national debt increase in the loan recipient - country. The money transferred by the World Bank to the country, then appears on the commercial bank deposits. Therefore, the amount of deposits on the global scale increased. When the country borrows from the IMF using the SDR, additional money appears in the form of the international currency completely convertible into other currencies. So, the total amount of bank deposits on the global scale increases.”

The loans issued to developing countries are actually intended not for promotion of the economic progress of the Third World countries. Indeed, according to M.Rowbotham, it is the “help” of West to itself, to say more accurately, to the world usurers, and at the expense of the PWC countries:
“The money obtained by a country in the form of loans of international financial institutions, then will be spent in the developed countries for purchasing of investment and other goods, services and operations. There is a strong possibility that very country the commercial banks of which purchased the bonds of the World Bank before appears that developed country. Therefore, in this developed country there will be increase of bank deposits at the expense of the funds received from the developing country… Therefore, the money issued in the form of a loan of an international financial institution becomes very soon a part of the money supply of the developed country. The debt is entrusted to the developing country. In short, with the help of the money which is given to developing countries, the developed countries provide selling their goods, their economy is booming, the money supply is growing and the burden of debts of developing countries is gaining ground. Therefore, the developing countries become a part of the mechanism providing developed countries with money. The total amount of the outstanding debt of developing countries now is equaled 2100 billion dollars. Certainly, if to compare this amount with the total money supply of the developed countries, it appears a very minor amount. However, if to compare this amount with the gross domestic product of developing countries, it is a very serious amount, and this debt influences very heavily on the developing country economy.”

It is interesting to look at examples of individual countries, how the western creditors attracted them to the “debt traps”. Once again we emphasize that over the last two decades such attraction has been carried out under a mask of “reforms”. The “reforms” which were registered in the ‘Washington Consensus’, and which “promotion” was entrusted to international financial institutions. First of all, to the World Bank and International Monetary Fund.

“Debt pit” for Argentina

Argentina can be a “classical” example of the “reforms” guiding a country to a “debt trap”. The country external debt spiked as a result of neo-liberal reforms which began in the country in 1991. As we know, Argentina under the IMF pressure accepted a system of so-called “currency management”; the rate of peso was rigidly tied to the dollar (1:1). The emission was allowed only in case of an increment of the gold and forex reserves, and the control over maintenance of this procedure was transferred to the special currency committee closely associated with the Fund. In fact, there was a partial loss of the sovereignty, at the same time, the Argentina government expected in exchange to receive loans and credits from international financial institutions. Sale of the currency returns became not necessary for the exporters. The currency control under the conditions of the reform was cancelled. The liberalization of the bank sphere resulted in that Argentina became one of the dirty money laundering zones.

Within the seminar in October, 1999 with participation of specialists from Argentina and the USA it was reported that for one year in the country 15 billion dollars was laundered including 6 billion dollars connected to the narcobusiness.

The authorities consciously provided large profitability under the dollar deposits as compared with peso deposits. The volumes of savings in dollars and peso got almost equal, that became an impressive display of dollarization of the Argentina economy. The crediting of the economy also started to be realized in dollars by a half more. A third of the money supply circulating in the country is in dollars. The obligatory reserving began to be carried out in dollars. For the national currency (peso) there were only two spheres left: salary and taxes payment.

The foreign capital received the free access into the national economy, first of all, into the bank sphere.

As a result, for six years the foreign banks increased their share in the bank assets of the country from 17 % to 53 %.

The foreign capital penetrated into all the spheres. The prices of enterprises were put too low. All key branches of the economy including the plants of the military industrial sector appeared under the control of transnational corporations. The foreign investments were directed not for creation of the new plants, but for buying up of already existing (80 % of all foreign investments) ones. As soon as the FRS increased the interest rate, the attractiveness of the Argentina market for foreign investors evaporated. The capital flight began, and the government could not stop it since the currency control was cancelled in fact. For compensation of losses of the capital flight the government carried out the total privatization for knock-down prices. After privatization the investments flow into the country was axed (in 1994-1995 their volume already was approximately equaled to what it was before privatization at the beginning of the 90s). By the end of the last decade almost all branches of the national economy were paralyzed are disassembled except for the petroleum industry. The situation is so unfavorable that not only capitals but also plants are escaping from the run from the country. 1999 was called by the year of “great transmigration” of the industrial plants from Argentina to Brazil where the investment climate is supposedly more favorable.

In April 1999, the collaborate research of the Ministry of Economic Affairs of Argentina and IMF found that at that moment the Argentineans kept abroad not less than 90 и billion dollars. This sum exceeded the volume of all bank deposits in the country and was 4 times more than the currency reserve of the central bank. It was equal to the volume of export of the Argentinean goods for 3,5 years.

That is what S. Valyansky and D. Kalyuzhny note in connection with the experience of the “reforms” in Argentina:
“…our monetarists convince us of that the investment attractiveness of the country is ensured by three main conditions: stabilization of inflation, firmness of exchange and economic growth. If any, capitals will begin flowing into the country like water. Argentina had moments when all of them were simultaneously. However, for some reason capitals did not flow, and not very competent Argentinean not experienced in the economical theories of the monetarists continued persistenly to take their capital out abroad.”

The “reforms” had far-reaching political and social consequences for Argentina. By the end of 1999, the economy of Argentina ceased its existence as a complete system oriented towards the interests of the country. The control of the foreign capital and IMF over the economy and finance of the country caused the loss of its political independence. In 1997, the country obtained a status of the “major ally of the USA of the not the NATO member –countries”. On the international scene it appears as a satellite and vassal on all issues without exception. Within the session of the Organisation of American States

Argentina opposed itself to all Latin American neighbors, appeared the only country of South America which supported the American doctrine of the “limited sovereignty” for Latin America (i.e. in fact accepted the right of the USA of military intervention in any country of the region by analogy with Yugoslavia).

The doctrine oriented towards the interests of the big speculative capital ignores the problems of the overwhelming majority of the country population. The Argentineans were shocked when the data of the secret report of the World Bank “Poverty and income distribution in Argentina” leaked into the press.
It turned out that the incomes of 36.1 % of the country population do not allow to buy the minimum food basket. 8.6 % are in the state of slow dying, since they consume calories less than the physiological minimum. 40 % of children younger than 14 years old are below the low-income poverty threshold. In February 2000, the Fund in exchange for granting of a new credit demanded to increase the woman retirement age from 60 up to 65 years old.
And above all, Argentina firmly “got hooked” on the “debt needle”. For support of the peso and dollar parity, the authority had to permanently resort to large borrowings. The external debt, which at first decreased due to the privatization (they actively used it for the propaganda purposes), soon became rapid growth.

In period 1991-1997, it grew almost for 50 billion dollars and reached the amount 110 billion dollars, and at the end of 1998 jumped up to 144.2 billion dollars.

It is interesting that the growth of the external debt went faster than the growth of the gross domestic product, and much faster than the growth of the real sector of economy. It means that during the Cavallo`s reforms (Minister of Economic Affairs of Argentina in the early 1990s) the country economy was not developed but spent on food imposing more and more heavy burden on the following generations.

Bluff of the Chilean “miracle”

The experience of the economy “reforming” in Chile, another country of Latin America, is not less interesting. Many consider this country by a “testing ground” of monetarists. During the post-war period, the Americans made large investments in the mining industry of Chile (first of all, in the copper sector) and owned the most part of plants in the industry. In 1970, socialist Salvador Allende came into power. His government nationalized not only extractive plants but also banks and plants of other industries. In September 1973, the Allende`s regime was overthrown with the help of the CIA. General Pinochet returned the property to its owners. Around of the general a group of the Chilean economists (about 30 people) gathered. They, in due time studied economics at the University of Chicago and became the sticklers for Milton Friedman, аn advocate of the theory of the “free and self-regulating market”. In 1970-1980s, the team of the economists – monetarists carried out an experiment with the country based on the monetarism recipes by M. Friedman.

The programme of monetarists which was developed even before the Washington Consensus appearance included: a) deregulation of the market; b) liberalization of foreign trade; c) slump in the money supply; d) saving (cutting) of the government expenditures; e) winding up the trade unions; f) privatization of social programs (first of all, pension provision); g) full rewriting of the laws and constitution.

For the first two years (first phase) of the reforms (which began in a year after the Pinochet`s accession to power) the money supply was under reduction, and the government expenditures were cut.

A consequent of the first phase became the following: the unemployment was doubled – 9.1 to 18.7%; production felt by 12.9 %. It had been the strongest depression in the country since the 30s.

At the second phase of the reforms (since 1976), the active attraction of the foreign capital into the country began. Only the loans in the period 1977-1981increased by three times. In the period 1976-1981, there happened that is traditionally called by the “economic miracle”: average annual rates of increase in the social product were equal to 6.6 %. However, it is a fraud: actually there was no “miracle”. In this case, a so-called universal rule took place: “the deeper the depression, the more the consequent growth”. The mechanism of this “growth” is very simple. At the moment of depression, millions of workers lose their jobs, the factories idle. During the economic expansion, the workers come back to their working places, and a show of growth arises. Such a growth is quickly achievable without any difficulties and victims. The real growth supposes not only reaching the pre-crisis point , but also further gradual raising of production with the help of investments and creation of new working places. Within realization of the neo-liberal recipes, it is possible to achieve a show of growth, the real growth is not possible. In other countries a false growth can be also passed off as the economic growth. So, after the economic recession in 1980-1982, in the American economy in the time of Reagan, who gave impetus to development of the neo-liberalism both inside the country and in the world, the economic expansion began, however, it is possible to be called by “false” growth. At the same time, it is necessary to remember that within the neo-liberal models of development there is generally the “bubble” growth connected to the non-production sector.

1977 to 1981, 80 % of increment of the social product in Chile fell on the financial sector and other “virtual” sectors of the economy (advertising, marketing etc.). In a part of the increment of the social product there was a great part of the international currency speculators attracted by high interest rates (in 1977 they were 51 % that was a record among all countries).

So, the economic miracle in Chile was “bubble”, “dummy”.

The third phase of reforms began in 1982 when the economic depression (caused partly by the debt crisis) began in the world. The Chili economy was the worst hit by depression, it was in ruins.

The maximal unemployment rate was 34.6 %; industrial production in 1982-1983 decreased by 28%.

The cause of such slump is axe of flow of the foreign capital, which coincided with the moment when it was necessary to pay unrealistic interests on the earlier obtained credits. The largest financial groups of the country were coming to ruin, and only massive help of the state prevented them from complete collapse.

The fourth phase began in 1984, when the country received enslaving loans of the Fund, and the economy began its rehabilitation. This period was rather long and lasted up to 1989. However, there was substantially dummy growth.

In 1989, the gross domestic product per capita was still by 6.1 % lower than in 1981.

In 1988, at the peak of the economic stability, the government decided to hold a referendum approving the authorities of president Pinochet for the next eight years. It did not get encouragement. In 1989, Patricio Aylwin, a Christian Democratic middle-of-the-road candidate, became the president of the country. The Pinochet`s epoch was completed.

The epoch of reforms was completed with heavy for the people.

Property differentiation.

Property differentiation strongly grew. In 1980 the most rich 10 % of the population laid hold on 36.5 % of the national income. By 1989, this part grew up to 46.8 %. For the period 1970-1989, the part of the national income falling on a share of the hired workers decreased from 52.3 to 30.7 %.

Growth of poverty.

By 1989, 2/5 (more accurately 41.2 %) of the population lived below the poverty level, and 1/3 of them were in the desperate plight. Slums appeared around Santiago; the life there was supported with the help of free soup kitchens. The number of Chileans not having normal housing increased from 27 % in 1972 up to 40 % in 1988. Consumption of food by the poorest 40 % of the population of the country (average number of calories per capita per day) made up in 1970 - 2019; in 1980 - 1751; in 1990 - 1629.

State pension system breakdown.

In the government of Pinochet there was a minister of labour, Jose Pinera. He was the pioneer of creation of a private pension system. Pressed by the authorities 90 % of the population switched over to the private programmes (many employers just wrote out automatically their workers to private programmes). Today it turns out that more than a half of those who were included in the 80s in the private pension programmes stopped paying dues; a significant part of those who now are still members of the private programmes in their past paid dues off and on. It is possible, that just a few will come to the finish; the majority of the workers after approach of the pension age will receive nothing based on a formal explanation that they “violated” the due rules of private programmes. However, how is it possible to realize regular dues in the country where in the certain moments the unemployment reaches a third of all economically active population?

Debt “trap” for developing countries

The experience of practically all developing countries, not only Latin American ones, testifies about the debt “trap” they are caught in.
For example, in middle 1990s the debts of countries of Africa located to the south of Sahara were equal 211 billion dollars. It is twice as much as the cost of the aggregate annual export of these countries. It is interesting that since 1984 (up to the past decade middle) the countries of this region paid 150 billion dollars to the western creditors on the basis of the debt servicing.

Here is the official data of the World Bank for the period 1980-1986 on 109 developing debtor countries. At the beginning of this period, the liabilities of these countries to the creditor banks were equal 430 billion dollars. 658 billion dollars were paid for the period including 332 billion dollars on the basis of payment of the principal debt and 326 billion dollars in the form of the debt servicing (interest payment). On the average, for a year developing countries transferred to the creditor banks about 100 billion dollars. At the end of the period (taking into account issue of new loans and restricting the credits issued before and outstanding) the volume of debts of these countries was equal already 882 billion dollars. I.e. just for у few years, the countries paid sums by 1.5 times exceeding the sum of the primary debts. At the same time, the debts did not decrease but became twice as much. That is the arithmetic of the “debt economy” in the global scale.

In conditions of the “world economical upturn” the Third World countries gained large loans from the West. At the crisis the West began to require payment of the liabilities under these loans.

According to the data of newspaper The Financial Times (17.03.2009), the amount of these liabilities being subject to payment in 2009 is evaluated in 1.4 trillion dollars. It is about 14 times as much as they paid the creditors during 1980-1986 (see above). Among the key debtors are Brazil, Mexico, India, several countries of Latin America and Southeast Asia.

In fact, the countries which got in the “debt pit” of the usurers – owners of the “greenback machine” (FRS) lost their financial sovereignty, and the loss of the financial sovereignty is inevitably dilute also the political and cultural sovereignty. D. Golubovsky writes very convincingly about the debt nature of modern money as a cause of loss of the financial sovereignty of many states:
“…countries which do not have the financial sovereignty are simple adjuncts of the dollar economy and completely depend on it due to the debt mechanism of creation of all money. Every such country in relation to the credit-and-financial system of the USA can be considered as a certain American conglomerate which like an ordinary corporation can run the budget surplus, deficit and even can appear a bankrupt. It is important to understand, that the only thing such a system of the debt money circulation can give birth to in long-term perspective is heaps of uncollectable debts of the whole non- financial sector to the financiers. This paradoxical and rather absurd situation, when those who produce the real global goods find themselves deeply in the debts to those who create by a couple of clicks on the computer keys a digital equivalent of the cost of these goods, is the today reality and consequent of operation of the debt money circulation established on the Earth.”

In fact, a new world order is formed today under which the world has been divided into the countries of the “gold billion” (GB) and PWC countries. The essence of this order is simple: the first ones ride the second ones. An ideal slave system across the globe. At the same time, in the textbooks on “economics” the PWC countries as well as the GB countries are referred to the “market economy” (just the first ones, according to the “professional economists”, are a bit behind the second ones in their movement on the road of “progress”).

But it is like telling about “ride” with no explanation of necessity of both horsemen and horses. And the textbooks on the “market economics” tell us predominantly about the “riders” – GB countries but almost nothing about the “horses”. And the “professional economists” from the IMF are forced to touch the subject of “horses” in their reports: they suggest an idea that if the “horses” obey the “riders”, then a bit later they will “obtain” a position of “riders”. The truth, for some reason till now no “horse” have obtained such a position, but some most obedient “horses” died without being noticed.

And if to speak seriously, for the PWC countries the further stay in such a “world market economy” means a deadlock, degradation of their economy and unavoidable extinction of the population. There are only two alternatives for the PWC countries to overcome the deadlock.

The first alternative: the country itself tries to become a “rider”. But there are no more free “horses” left, and nobody of the today's “riders” will voluntarily give the saddled “horses”. This alternative supposes the conservation of the valid laws of “wild” capitalism, reproduction of the order of the permanent “war against all others”. Under such an order there are less and less “riders” and more and more “horses”.

The second alternative: to try to live under the laws different from the laws of the “wild” capitalism. For this purpose, first, it is necessary to get rid of one riding your back. Second, to establish within the own area the sovereign laws which in general eliminate the model “rider – horse” and approve the model of mutually advantageous cooperation of the sovereign states. In this model the “horses” are not stipulated at all. Such a model practically was realized within the framework of the commonwealth of socialist countries after the second world war. First of all, within the framework of the Council of Mutual Economic Assistance (CMEA). The only question which we are going to touch in this connection: why did this mutually advantageous cooperation end up in the socialist camp collapse? Maybe, this model of intergovernmental relations is noncompetitive as compares with the model of the “world market economy”?

To answer this question in short, we will cite an extract of the work by A. Krylenko ‘Money Power’ (we already mentioned it above):
“The economy grounded on the usury practice and supported by the Money Power (i.e. organised by force of the usurers - V.K.), is unavoidably subject to the chronic inflation and unemployment. Not meeting competition with any effective, free from usury adversary, Money Power can feel in safety only in such a world where all the governments use the same credit system and consequently experience the same shortcomings. In the final analysis, the Money Power must rule the world or vanish.”

In other words, during the last decades of the last century the paradoxical situation happened: the new model of intergovernmental economic relations, embodied in the socialist commonwealth, was more competitive as compared with the model of the “world market economy”. For this very reason the world usurers attracted all the means of killing of the socialist commonwealth. At the same time, the usurers did not study the textbooks on Marxism which drummed into the Soviet people`s heads: there is the basis of the society in the form of the economy and the superstructure in the form of the political institutions, religion, philosophy, legal relations and other “little nothings”. The usurers studied the textbooks where everything is quite the “contrary”: the ideological, spiritual, political relations are the basis, and the economy is second in relation to it. Therefore all the energy of the usurers was aimed, first of all, at undermining of the spiritual - ideological and political basis of the socialist commonwealth and individual countries it its composition. The disorder of the economy was only a consequence of such undermining. Unfortunately, our “professional economists” cannot understand this simple truth and continue singing a plain song about “ineffectiveness” of the planned economy and “nonviability” of the socialist economical integration.