Wallstreet video: Nobody can predict the moment of revolution

Nobody Can Predict The Moment Of Revolution from ivarad on Vimeo.

Tax Justice campaign in Britain

Tax Justice from PCS Union TV on Vimeo.

The global financial crisis, caused by the speculative activities of the super-rich, resulted in bailouts of banks and other financial institutions in most developed countries in the world, including New Zealand. The cost of the bailouts and the economic fallout from the crisis has hit grassroots people, through job losses and income cuts, but also increased taxes to pay for the bailouts. But often, as this video makes clear, the super-rich and big corporates have been allowed to escape paying the levels of tax they should. Last year, John Key’s National government upped GST to 15% and lowered taxes for the most wealthy people in New Zealand, and gave big corporates a tax cut as well (company tax has been lowered from 30% to 28%, now one of the lowest corporate tax rates on profit in the world). The massive bailouts and tax cuts to the super-rich have led to governments around the world cutting spending on health, education, welfare and other essential public services. No wonder the call for Tax Justice is starting to sound out loud from ordinary people who are angry at what governments, in partnership with the banks and big corporates, are trying to get away with.

Help fight for Tax Justice in New Zealand. Join the campaign to remove GST from food and tax financial speculation instead. 

Click here for more info. Or contact directly Vaughan Gunson, Tax Justice campaign coordinator, email svpl@xtra.co.nz or phone/txt 021-0415 082.

A Futures Commission to forecast what the world's rich will do

In conclusion to his article Ruling on Behalf of Wall Street's "Super Rich": The Financial End Time has Arrived, US left-wing professor Michael Hudson writes:

What we need is a Futures Commission to forecast just what will the rich do with the victory they have won. As administered by President Obama and his designated appointees Tim Geithner and Ben Bernanke, their policy is financially and fiscally unsustainable. Providing tax incentives for debt leveraging – for most of the population to go into debt to the rich, whose taxes are all but abolished – is shrinking the economy. This will lead to even deeper financial crises, employer defaults and fiscal insolvency at the state, local and federal levels. Future presidents will call for new bailouts, using a strategy much like going to military war. A financial war requires an emergency to rush through Congress, as occurred in 2008-09. Mr. Obama’s appointees are turning the U.S. economy into a Permanent Emergency, a Perpetual Ponzi Scheme requiring injections of more and more Quantitative Easing to to rescue “the economy” (Mr. Obama’s euphemism for creditors at the top of the economic pyramid) from being pushed into insolvency. Mr. Bernanke’s helicopter flies only over Wall Street. It does not drop monetary relief on the population at large.

The unsustainability of the US economy that Hudson writes about is leading many people, including Socialist Worker, to the conclusion that capitalism is entering its end time, however long that might last. The global response of socialists must be to lead a broad mass challenge to neo-liberalism right now and plan ahead for a seismic shift to a post-capitalist world.

To find out more about these ideas read Grant Morgan's compelling essay ‘BEWARE! THE END IS NIGH - Why global capitalism is tipping towards collapse, and how we can act for a decent future’.

John Minto: A simple question from a taxpayer

By John Minto
from Frontline

The Christchurch earthquake has (quite rightly) knocked several important issues from the front pages and off the TV news. Now that the worst appears to be over, it's time to revisit those issues - the most pressing of which is the biggest corporate bailout in New Zealand history.

There are many questions demanding answers after taxpayers forked out $1.7 billion to buy debt-laden South Canterbury Finance. For example, last week I was sent information suggesting one individual bought $17 million in SCF bonds at 20 per cent of their face value as the company, in its dying days, desperately tried to raise funds to stay afloat. It seems this money was invested in the names of various entities rather than in one person's name and because SCF went into receivership the government deposit guarantee scheme means this individual will be paid out at the full 100 per cent value of the bonds. A bit of arithmetic shows a payout at $85 million - or $68 million profit, courtesy of taxpayers, after just a few weeks.

My question to Finance Minister Bill English is simple. Is this just water cooler gossip or is it true?

Why We Need To Tax Financial Speculation

By Vaughan Gunson
Tax Justice campaign coordinator
from CAFCA’s “Foreign Control Watchdog”, August 2010

The figures are mind blowing. The International Monetary Fund (IMF) estimates that the financial crisis cost the world $US11.9 trillion. The human cost is immeasurable. And it ain’t over. The international bailouts of banks and other financial institutions have seen trillions of dollars of private debt off-loaded onto governments. The financial crisis has not been fixed. The problem has just been shifted. The bailouts have created a “sovereign debt crisis”, which is breaking first in Europe. Governments worldwide are scrambling to get debt under control. The “fiscal stimulus” that accompanied the wave of banking bailouts has now passed over to “austerity measures”, which means cuts to public services and higher taxes for grassroots people. Those who had no part, no say, and no responsibility for the financial crisis are being made the victims, many times over.

The leaders of a club of rich countries called the G20 (Group of 20) recently met in Toronto, Canada. The strategy of making us pay for the crisis was clear. G20 leaders issued a joint statement on 27/6/10 committing member countries to halving their budget deficits by 2013 [1]. As Toronto resident and anti-capitalist campaigner Naomi Klein wrote: “Faced with the effects of a crisis created by the world’s wealthiest and most privileged strata, they decided to stick the poorest and most vulnerable people in their countries with the bill” [2]. This is what the world’s elite are trying to get away with, if we let them.

Austerity Hits New Zealand

The New Zealand economy nose-dived into recession in 2009 as the financial crisis quickly spread to the real economy. There have been widespread job losses and general job insecurity, as well as stagnant or declining wages relative to inflation. Many people are struggling under the burden of mortgage and credit card debt. Our Government has not bailed out banks like the US or Britain, but the impact of the crisis on the Government’s budget has been similar to overseas: declining tax revenue from falling economic activity, combined with increased spending demands, like unemployment benefits.

The policy “solution” that the John Key government is pursuing is no different from the dominant policy response by governments around the globe. Protect the rich and do everything possible to get the economy going again under much the same model as before. Increase taxes on grassroots people, while restricting their access to public services. National’s 2010 Budget saw direct cuts to Government spending, like early child care. And effective cuts, as funding increases for health and education failed to keep pace with inflation. More social spending cuts have been signalled. Many public sector employees are facing the axe as the budgets of Government departments are slashed.

Amidst this austerity, National still delivered tax cuts to the rich and big corporates. This benevolence to the rich was funded by increasing the goods and services tax (GST) from 12.5% to 15%. It’s widely accepted that GST is a regressive tax which disproportionately impacts on grassroots people, who spend most of their weekly income on the basics. Many people in New Zealand and around the world smell a rat. The scale of the much reported banking bailouts, the ongoing impact of the crisis on our lives, as we worry about our jobs and paying off debt, has raised the question for many: is there something wrong here?

The Speculators

We need to understand what’s wrong so we can organise strategically to defend ourselves. Crucial to that understanding, is grasping the dominant role financial speculation has assumed in the world economy. Financial speculation is defined on Wikipedia as “the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price, irrespective of its underlying value” [3]. Speculation has long been a part of the capitalist economy, with its damaging effects well documented, if often ignored.

But what we’re seeing today is historically unprecedented. In 2008, the trade in derivatives [4]– the most speculative of financial transactions – was $US500 trillion, which was ten times the value of the entire world’s output of tangible products and services. Much of this speculative activity is computer automated, with “purchases” lasting minutes or even seconds. The rapid growth in commodity speculation over the last decade has led to such perverse phenomena as a barrel of oil being traded, on average, 27 times before it reaches the pumps.

The reason for all this speculation is quite simple: the profits to be made from traditional investment in capitalist enterprises that produce something of value has been in decline since the post-war economic boom came to an end in the early 1970s. Today’s unprecedented levels of financial speculation represents the desire, on the part of the world’s elite, to continue reaping high profits, way more than the stagnant real economy will allow [5]. To achieve this, governments worldwide have removed all barriers to financial speculation and encouraged a supply of cheap credit by banks and other sanctioned lenders. A giant financial casino has been created, where everything that fluctuates in price has attracted the speculators [6].

Just like in the real economy, where large companies grow to dominate industries, so it is in the world of financial speculation. The last two decades have seen the rise of giant investment funds, where investors – usually rich wealthy ones – pool their money together in the hope of achieving better returns from long term investments and short term speculation. Billion dollar pension funds and hedge funds, by the very size, can influence the markets. In 2008, it was estimated that pension funds globally controlled US$20 trillion in assets. Hedge funds, which are most often involved in pure speculation, managed around $US2.5 trillion immediately prior to the financial crisis[7]. In sum, financial speculation has grown to 60 times the level of the world’s combined gross domestic product (GDP)[8].

Government-Banks-Speculator Nexus

The governments of the world have acted as the “public facilitators” of global financial speculation. They’ve done so in partnership with the big banks, who are the “private facilitators” of speculation. The world’s big banks are either directly engaged in speculation, being at the epicentre of all financial activity and thus able to read trends and manipulate the markets, or they supply the credit with which others play in the casino. Thus the banks are the biggest speculators of them all. And they’ve got fatter and fatter. America’s six largest banks have combined assets totalling 63% of the United State’s gross domestic product. The extent of the banks’ ascendency is revealed by the fact that only 15 years ago the combined assets of the six biggest banks were 17% of GDP9.

It’s an open secret that Wall Street banks have entered markets with the aim of generating a price bubble. After making their speculative profits they’ve exited the market, collapsing the bubble, before moving on to the next market. The housing bubble followed the dot.com bubble, then the oil price bubble. Next it was the food price bubble. These aren’t speculative bubbles caused by the random vagaries of the market, but orchestrated on high by powerful banking interests, with the blessing of Washington regulators.

Grant Morgan, in his essay “Beware! The End is Nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, argues that financialisation is the central pillar of neo-liberalism, the economic agenda promoted by Big Business and imposed by governments around the world over the last three decades. He likens the massive expansion of the financial sector, with its easy credit and speculative bubbles, to a global Ponzi* scam, one protected by government laws, corporate politicians and state officials[10].

[*A pyramid scheme whereby original investors are paid beguiling dividends from new advances. Bernie Madoff is the most high profile recent perpetrator. These scams are still called Ponzi schemes, after Charles Ponzi, who provoked the 1925 Florida real estate bubble. Ed.]

Speculation has been hard-wired into the global economy. Those who control financial systems reap the rewards, but only by causing structural damage to the whole system. All reasonable logic says that this must end, that it’s unsustainable. But as global capitalism has bet everything on financialisation, there’s no possibility of turning back. The government-banks-speculator nexus, from the point of the view of the world’s elite, has to continue[11].

Crimes Against Humanity

Waves of global speculation have had an enormous impact on the world economy and the lives of the grassroots majority. The housing bubble pushed house prices through the roof and caused grassroots people to be burdened with historically high levels of debt. When the housing bubble in the US burst in 2007, the big financial players quickly went looking for a new market to speculate in. They turned to another necessity of life: food. World rice prices – a staple for much of the world’s population – increased by 320% between January 2007 and June 2008. The price for wheat went up 240%[12]. There was no reason for this other than the deliberate creation of a price bubble by powerful financial players able to shift billions into these markets, chiefly big American banks, with the rest following.

That bubble burst as the financial crisis hit, but food prices haven’t come all the way back down. Once prices rise, other corporates in the food chain have an interest in keeping prices at the higher level. Food distributors and supermarket chains are quick to seize the opportunity to skim some extra profit. So we’re still paying more for rice and bread than we were in 2007. Governments, big and small, are facilitating this crime against humanity. In 2000, the United States government passed the Commodity Futures Modernization Act, which allowed non-grain producers to buy derivatives on the grain futures market. The intended beneficiaries of the law change: pension funds, hedge funds, and all sorts of other financial speculators, including big banks.

Of course if you’re a big corporate bank you don’t want to actually physically own a whole lot of grain, to sell or do anything else with it. But what derivatives markets do is allow speculators to trade in pieces of paper (“promises to buy” in the future) instead. Jayati Ghosh, a respected Indian researcher and campaigner, explains: “[W]hat’s happened, really, in this decade, is that the possibility of speculation in food grain has been delinked from the physical holding of the commodity: you don’t need to hold a commodity anymore; you can hold pieces of paper, which are contracts on the price for the future”[13] .

Speculative bubbles never last, but if you’re a big player able to manipulate prices through the sheer scale of your purchases, then you can make a killing. And it’s a killing field indeed, because grain, or any other basic food commodity that gets turned into a speculative bubble, means a global price spike, which causes the world’s poorest to starve. In 2007-08, the number of people suffering from malnutrition globally rose from 800 million to one billion. This was the direct result of financial speculation in food. Ghosh believes another food bubble is being manufactured. World food prices have been rising since April 2009, and not because of increasing demand or contracting supply, but speculation again in commodity futures markets.

Speculation In New Zealand

While New Zealand’s finance sector is not big by world standards, the same banks-speculators-government nexus exists. Since 1984 a priority of both Labour and National governments has been deregulation of all parts of the financial industry. This has opened up New Zealand’s financial markets to international and local speculators, resulting in price volatility and inevitable cycles of boom and bust. One market that attracts high levels of speculation is the New Zealand currency market. The Kiwi dollar is the 11th most traded currency in the world. New Zealand certainly isn’t the 11th biggest economy in the world with a massive turn over of trade. Global speculators have created a market for the Kiwi dollar. It’s like a special game of roulette has been created in the South Pacific for the world’s high rollers.

Despite its relatively small size the New Zealand stock market is also subject to plenty of speculative activity. The volume of shares traded is quite substantial. In June 2010, for example, daily turnover ranged between $50 million and $120 million. Like all stock markets around the world a large percentage of this trade is by speculators – mostly overseas ones – betting on share price fluctuations. Share purchases for long term investment are only a small fraction of regular trading activity.

The John Key government wants to encourage more speculation in New Zealand. Perhaps this is not surprising, given that John Key made his fortune in the world of high finance. But it also reflects the fact that the Government, and the economy as it stands, is locked in tight to the model of hyper-financialisation which remains the source of so much profit for the rich. The Government has given the green light for NZX, the company that runs the New Zealand stock market, to create a derivatives market for milk. This market for “promises to buy” will see milk prices directly influenced by local and international speculators. Milk and milk products will therefore get caught up in any food price bubble[14].

John Key has also floated the idea of turning New Zealand into a “financial hub”. The plan rests on enticing global investors to New Zealand with the promise of tax breaks. A recent Inland Revenue Department report entitled “Allowing a zero per cent tax rate for non-residents investing in a PIE [portfolio investment entity]” reveals what’s being considered. Under this proposal, overseas investors would be allowed to operate in this country and not pay New Zealand tax on their international investments. Perhaps the greatest wrong is the establishment of an Emissions Trading Scheme, or pollution market, as it should truthfully be known. The Government’s pollution market will be another opportunity for the speculators, which is precisely why the world’s big banks and other financial institutions are pushing carbon trading as a solution to climate change. It won’t be a solution, far from it, but it will be another market for them to profit from.

Tax The Speculators!

The scale of the bailouts, in the US and Europe in particular, has caused great anger amongst grassroots people worldwide, and this has led to some politicians proposing measures to try and reform the financial industry. The global crisis has not, however, reversed the “free licence” that governments have given to the world’s financial speculators. Their ability to grow their wealth and power remains intact. But they are potentially vulnerable, for the reason that the role the banks and other financial institutions have played in the crisis is becoming understood by many grassroots people. It’s therefore imperative that our side flames the fires of anger by further exposing the government-banks-speculator nexus, while at the same time putting forward solutions.

That’s where the New Zealand campaign for tax justice launched by Socialist Worker and the Alliance Party comes in. The immediate focus of the campaign is a non-citizens’ initiated referendum petition which requests Parliament to 1) Remove GST from food; and 2) Tax financial speculation. These two demands address major injustices in New Zealand’s tax system. Grassroots people have to pay tax on one of life’s necessities, food, while financial speculation goes untaxed. Overseas speculators playing New Zealand’s financial markets do not pay a cent of tax on their market gains to the New Zealand government. Likewise, the rich in this country pay no tax on their wheeling and dealing. The main exemption from GST today is for “financial services”, which includes all the activities associated with financial speculation. Taxing financial speculation, as demanded by the Tax Justice petition, would be a progressive reform of a tax system that currently favours the wealthy[15].

Build The Real Economy

The first principle of progressive taxation is that you tax the rich more than poor. On this count taxing financial speculation is progressive. It’s only the very rich who speculate. The second principle of progressive taxation is that you tax things that society wants to discourage. Global financial speculation ruins more lives than smoking, and costs society astronomically more in dollar terms, so if any bad habit needed to be taxed, it’s financial speculation. The best way to make the speculators pay more tax is to hit them at the point where they accumulate their wealth, which is when they buy and sell. This can be done through what’s called a Financial Transaction Tax (FTT), a small percentage tax (perhaps 1% or less) on financial transactions.

Barry Coates, executive director of Oxfam New Zealand, is all for a Financial Transaction Tax, so that “taxes on life’s essentials [like GST]” can be replaced “with a tax on socially destructive financial speculation”[16]. A Financial Transaction Tax would net billions, for example, from speculative trading in the Kiwi dollar alone. Not all of this trade occurs in New Zealand, but a sovereign country can place a tax or levy on the trade of its own currency taking place any where in the world17. A big positive of a FTT is that it would reduce the volume of short-term financial transactions, often computer automated, by large institutional speculators, big banks, pension funds, hedge funds, and the like. A small percentage tax at the point of purchase and sale would wipe out any profits the really big spenders are able to make from short term speculation.

The main obstacle to taxing the speculators is political. The beneficiaries of the current environment of gung ho speculation will oppose any move to curb their profits and power. That’s what privileged elites have always done. They’ll put up arguments like: “it’s too difficult”, when it’s not. They’ll say it will cost “Kiwi jobs”. It won’t, because speculation only benefits the speculator, creating economic havoc in the process. The global financial meltdown of 2008 will forever be proof of this. The political arguments for taxing the speculators can be won. Following the global financial implosion, the time is right to popularise a tax which hits the most hated global purveyors of greed and exploitation. That’s the aim of the Tax Justice campaign (for more information go to http://www.nogstonfood.org/).

In the longer term we need to wrest control of the economy off the speculators, banks, and those politicians wedded to hyper-financialised capitalism. We need to re-engineer the economy and direct energy and expertise into the sustainable production of real things, useful things, by useful people. Deciding the direction to go is not really the problem, there’s plenty of good ideas around that can guide us towards a more people-centred economy. The challenge is connecting with people on a mass scale, and achieving the necessary unity of action to begin that journey. A popular campaign for tax justice could be a spearhead for a wider movement that takes on the speculators and raises an alternative vision of an economy that works for us.


End Notes

1. Larry Elliott and Patrick Wintour, “G20 nations commit to halving budget deficits by 2013”, guardian.co.uk, 28/6/10.

2. Naomi Klein, “Let’s take no orders to slash and burn from this G20 club”, from guardian.co.uk, 29/6/10.

3. See http://en.wikipedia.org/wiki/Speculation.

4. Derivatives are contractual promises to buy a commodity at an agreed price in the future. See http://en.wikipedia.org/wiki/Derivative_(finance).

5. One measure of the floundering real economy is under-utilisation of industry capacity, which was 70-80% prior to the financial crisis, and has worsened since.

6. See the section on financialisation, “Follow the money”, in Grant Morgan’s essay, “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, Unity Journal, March 2010, pp16-27.

7. See http://en.wikipedia.org/wiki/Hedge_funds.

8. Barry Coates, “We could replace tax on essentials with one on destructive speculation”, Stuff News, 2/3/10.

9. Grant Morgan, “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, Unity Journal, March 2010, pp.20-21.

10. Grant Morgan, ibid. p.21

11. But the point where it’s impossible for governments to be the “lender of last resort”, and bailout the system again, is fast approaching. The whole hyper-financialised world economy faces collapse as it comes up against real world economic and political limits.

12. Jayati Ghowsh interview, The Real News Network, http://therealnews.com/t2/index.php?option+com_content&task+view&id+31&Itemid+74&jumival+5067

13. Jayati Ghowsh interview, ibid.

14. Hamish Rutherford, ‘‘Serious interest’ in derivatives”, 18/4/10.

15. He wasn’t speaking for all New Zealand’s mega-wealthy, but Trade Me founder Sam Morgan was telling the truth when he said he hardly pays any tax.

16. Barry Coates, “We could replace tax on essentials with one on destructive speculation”, 2 /3/10.

17. Barry Coates, ibid. Collecting this levy should be one of the functions of a Reserve Bank operating in the interests of the grassroots New Zealanders rather than the international financial institutions.

Obama’s policy guru gloomy about how to fix capitalism’s crises

Paul Volcker, chair of the Economic Recovery Advisory Board, meets with President Obama at the White House, 2009

By Grant Morgan

Socialist Worker
5 June 2010

A few days ago Paul Volcker, chair of the Obama administration’s Economic Recovery Advisory Board, published a strategic assessment of how to respond to the “dangerous and intractable” risks facing America and other advanced economies.

Despite weak attempts at optimism, his assessment is essentially alarmist. That’s reflected in his panicky headline: “The time we have is growing short”.

Volcker is clearly gloomy about the scale of the problems confronting global capitalism, and what to do to fix them.

He calls for internationally coordinated legislation to tackle “deep-seated structural issues”, such as “too big to fail” financial institutions which are “jeopardizing the entire economy” by taking excessive risks in the knowledge they will be bailed out by governments.

While Volcker holds out the “hope” that new laws will be beneficial, he admits that “none of these reforms will assure crisis-free financial markets in the years ahead”. The best that can be achieved, he says, is to keep crises “manageable” and “reduce their scale and frequency”.

And Volcker concedes that “the critical policy issues we face go way beyond the technicalities of law and regulation of financial markets”. For example, he cites “the risks associated with the virtually unprecedented levels of public debt” in developed economies which are now rocking the Eurozone.

He also points to “even larger questions of critical importance” only a little further ahead, like global warming, energy independence and environmental protection. “Are we really prepared to meet these problems, and the related fiscal implications?” he asks. “If not, today’s concerns may soon become tomorrow's existential crises.”

Volcker, who was chair of the US Federal Reserve under presidents Jimmy Carter and Ronald Reagan (1979-87), and now heads up Barack Obama’s crisis think tank, is one of the most influential policy shapers among America's ruling circles. And he is a major player among the elites of other powerful states through his prominent role inside international forums like the Bilderberg Group and Trilateral Commission.

Yet his public overview of what to do about structural problems facing key states reeks of pessimism. He comes close to admitting that “solutions” admissible to capitalism fall way short of fixing problems that could collapse the world system.

Obama's policy guru says today’s financial, ecological and energy “concerns” may soon turn into “existential crises”, a phrase that echoes my recent 20,000-word essay titled “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future.”

Here I analyse the “existential crises” of profitability, ecology, resources, imperialism and legitimacy. These five crises are converging into a perfect storm that looks sure to “tip global capitalism towards collapse amidst international revolutions and counter-revolutions”.

To view my essay, go to http://unityaotearoa.blogspot.com/2010/03/grant-morgan-beware-end-is-nigh.html.

Click “read more” below to view Paul Volcker’s essay.

John Clarke's shrewdly funny explanation of the European debt crisis

Converging Crises: Reality, Fear and Hope

by Susan George

from Globalizations 

19 May 2010

Although the G-20 and other official bodies have so far refused to acknowledge the fact, we are not simply living through a financial crisis, however grave the financial aspects of the current upheaval may be, but a multiple crisis whose component elements all strengthen and reinforce each other. For that matter, it's not even a 'crisis', which in uncorrupted language is a relatively brief moment between two possible outcomes—in an illness, for example, between recovery and death. We're in for a much longer period but here we will bow to the now-standard vocabulary.

Beyond finance, one should recognise that inequality within and between countries and citizens has reached unsustainable levels in both developed and developing countries. Poverty is spreading and deepening, food and water scarcities are worsening, conflicts thrive in increasingly stressed societies, and catastrophic climate change—advancing much faster than experts predicted—looms over the whole.

Activists send message to Key: “Make the banks pay!”

Bad Banks media release
13 May 2010

Prominent New Zealand activists and unionists are among the 53 public signatories to a letter to prime minister John Key calling for action to curb banking power and protect grassroots people. The full list of public signatories is included below.

The letter, written on behalf of grassroots people in New Zealand, reads:

Dear Mr Key,

Why are you wanting to raise GST? Food and everything else will be more expensive. It's already hard to make ends meet. Why don't you tax the banks and other fat cats that have been ripping us off? We want justice Mr Key, make them pay.

Signed,

Grassroots people of NZ

Is capitalism on the path to collapse? – Video from Wellington public meeting

Grant Morgan, author of UNITYblog's current Feature Essay, has just completed a short speaking tour. 

His talks in Christchurch and Wellington drew on, and developed, his 20,000 word essay on why global capitalism is tipping towards collapse, and how we can act for a decent future.

He argues that for the first time in capitalism’s 500-year history, a perfect storm is beginning to engulf the world system.

The main elements are system-level crises of profitability, ecology, resources, imperialism and legitimacy. Their concentration and intensification look set to trigger world system collapse within a historically short time period.

Humanity will face a life-and-death struggle as we confront economic chaos, global warming, resource scarcity and imperial breakdown.

Can we survive the chaos, conflict and carnage of looming collapse? Can Earth’s citizens collectively built a decent future in the face of elite counteractions? Yes, says Grant.

He resurrects Marx’s analysis of social change to explain the growing intersection of system-level crises which will collapse global capitalism as surely as previous civilisations were brought down by their own perfect storms.

“At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production,” said Marx. “Then begins an era of social revolution.”

An era of social revolution will be triggered by the perfect storm appearing over capitalism’s horizon as it collapses the economic, ecological and imperial foundations of the world system. The need to unite or die will call forth a Global Uniting of the mass of humanity which ushers in a society of solidarity.

Watch video footage of the Wellington talk below (apologies for the background hum in the audio track)

Bad Banks: everything leads back to financial capital

The following are Daphne Lawless’s notes from the talk she gave the Socialist Worker forum on “Bad Banks” on October 1.

Thank you all for coming. Thanks especially to Sue [Bradford, who was also on the panel], taking her first step out of that unpleasant bear-pit in Wellington and towards real-people politics again. Kia kaha, e hoa.

So, this is the first major meeting for the Bad Banks campaign. So it’s probably best to explain why Socialist Worker chose to initiate this campaign, and where we see it going.

Socialist Worker for the last few years has consistently followed a strategy of broad-party Marxism. What we need in this country, above all else, is a real mass party which unites radical leftists, traditional social democrats, trade unionists, Maori, feminist, queer, ecological and other social movements, which rejects neo-liberalism and commits to remaining politically independent of the Labour Party. The 57 varieties of leftist splinter groups which currently exist have no purchase on a real mass mood, and we must move past this kind of clique politics.

We have worked within RAM, the Residents Action Movement, as a demonstration of how this kind of broad-party politics might work in practice - although we are far from suggesting that RAM *is* the broad party. We have always been very clear that all groups and tendencies have to get over their small-group chauvinism, and be prepared to compromise to work together. We have had successes and failures, but it still seems clear that the broad-party strategy is the only strategy with any hope of success in the current climate.

How do we build this real political alternative? The alternative can’t be built by mechanical means - putting together the existing fragments like Lego blocks. No, the alternative has to be a political alternative. Which means it needs to be based on not only clear ideas pointing away from the current system, but on real social forces of real masses of people backing up those ideas.

The “transitional method”, which has been followed by radicals since Marx’s time, insists that you can’t get there by just jumping along any popular or populist bandwagon that happens by. But neither can you get there by drawing up a programme in some smoke-free room and then going out and preaching it on a soapbox. The essence of a transitional approach is to start with common sense – what everyone already knows from their personal experience – and follow a trail of logic that points towards a fundamental problem in the whole current set-up.

Rosa Luxemburg, the great German socialist, talked about the fusion of “workers and science”. That’s the essence of transitional politics – the combination of real grassroots anger at the system, with an analysis showing clearly how we can move beyond that system. We believe that Bad Banks has a good chance of having real success in those terms.

When we’ve been out on the streets on our Bad Banks stalls, we have confirmed what we suspected before – that ordinary people know clearly that “banks are a problem”. People turned down our first leaflet, not because they disagreed with it, but because they agreed totally and therefore there was no point reading it. When characters on Shortland Street are facing foreclosure issues, then you know it’s really a factor in mass consciousness.

Everyone knows that banks rip us off through fees. The media tells us all that the government keeps cutting the official cash rate, but the banks keep their mortgage rates high.

This is a crucial point that all radicals must understand. Since the mid 70s, the real world economy has pretty much stagnated. The income of ordinary people has not raised very much – in some countries like the USA, workers are actually paid less than they were in Richard Nixon’s day. The only reason that any major Western economy has grown is that the gap has been filled by cheap credit. Working people have been deliberately encouraged to take out mortgages, credit cards, hire purchase and in all other ways go into hock up to their eyeballs to make ends meet.

So this means that ordinary people are really screwed over when interest rates go up. And that means people’s attention is concentrated on the banks, as a visible sign that they’re being ripped off. That’s one of the problems with capitalism - the wage labour relationship *looks* fair, but it’s really exploitation. So workers find it much easier to see that the bank is ripping them off than the boss ripping them off. But it’s also a reason why in the absence of left-wing forces, workers can be distracted into how the government is ripping them off, and falling prey to right-wing tax-cut methodology. What Bad Banks is doing is attempting to find a “path of least resistance” in workers’ consciousness that leads in the right direction.

But on the other side of the equation, what this means is that finance capital – banks, insurance companies, private equity funds, all the other institutions which create pretend money – is now the political driver of the whole global system. What banks want, banks get. Huge bailouts, for one thing, paid for by cuts in public services. Wholesale dismantling of regulations back in the mid 90’s, and now resistance to putting any further regulations on them. Other forms of capital are subordinated to the needs of finance. Industry gets shut down by the truckload all over the advanced western states, smashing traditional working-class self-organisation and political consciousness.

Banks fund the kind of resource stripping which leads to ecological and social vandalism on a worldwide basis. Banks even brought down an entire country’s economic. Iceland was rich 18 months ago. Now it’s a basket case reduced to begging for the EU to let them in the door, because the banks sucked the whole country dry and then ran for it when the money-go-round stopped.

This eco-socio-economic vandalism creates a new form of proletariat in the Western countries - the French call it a “precariat”, from their “precarious” casualised lifestyle. Old-school capitalism was summed up by Henry Ford’s dictum that workers in his factory should be paid enough that they could afford one of the cars they make. A stable, suburban lifestyle for workers was encouraged, which also encouraged unions and other forms of worker self-confidence and self-organisation.

But increasingly in the Western countries, workers are roped into service industries - tourism, retail, call centres – or in making luxury goods for the rich. And most importantly – wages are so low that every worker simply must, at some stage, take out a loan or get a credit card just to survive. The industrial proletariat is not gone – it’s just moved to China, the Pacific Rim, the Mexican border and similar places where trade unions are illegal and the opposition is in jail. The brilliance of the current global system is that the industrial proletariat is now concentrated in countries where they don’t have basic democratic rights – while workers in the West have democratic rights, but are atomised and have no social power. The dominance of finance capital means creating a working class with no job security or historical memory, dependent on welfare and credit just to survive. That’s what they call “flexibility”.

While it was possible not to think about all of this during the bubble years, the economic crisis has just brought the central role of banks in a modern capitalist economy into sharp focus. And don’t be fooled by all this nonsense about “recovery” and “green shoots”. The media pundits talking like that have no historical memory and no vision of the future past the day after tomorrow. All that has happened is that the stimulus packages have worked – shovelling truckloads of free money the bankers’ way has opened up the doors of credit again. But the central problem is the same – that only continually increasing “helicopter drops” of free money can keep the system going. It’s just going to seize up again – and worse. Five cups of coffee might keep you awake all night, but you can’t drink thirty-five and hope to be able to stay up all week.

In modern capitalism, everything leads back to financial capital – which we can call by the shorthand of “banks”. This is why concentrating workers’ minds on the fact that banks are a threat is opening a small door to seeing the problem with the whole global system.

This is what some critics of Bad Banks don’t get. They seem to think that “Bad banks” must suggest that there are “Good banks”. Well, obviously some banks are worse than others. We’ve been asked whether Kiwibank or credit unions are as big a problem as the Aussie trading banks. Well, that’s a debate that we’re going to have to explore in the campaign.

But the message we have to get across is that the whole banking system is a parasitic growth on human society - but it’s not the fundamental problem. As long as we have capitalism, a system where production is devoted to private greed not public need, the banking system is a necessity - the system of economic and environmental exploitation just couldn’t work without it.

Lenin said that socialists should strike at the weak link. Socialist Worker believes that Bad Banks are the weak link - the weak link in the current global system, but also the weak link in ordinary people’s acceptance of that system. Masses of people can already see that banks are a problem. But if Bad Banks becomes a popular “meme”, it opens a door to an attack on neoliberalism or even capitalism as an entity – just like GST off food opens the door to a questioning of the whole edifice of sales tax, and why workers should even be paying tax in the first place.

SW does not want this campaign to be a “front”. We want this to be a properly broad campaign. Just about everyone on the further-left realises that banks are a problem. What we hope is that, in these early stages on the campaign, we will prove that “Bad Banks” has the ability to spread like wildfire through public consciousness. At that stage, it will become a self-sustaining phenomenon. We saw something like this in 2003 with the ARC rates revolt, and we took the initiative to found RAM to intersect with this public mood. Our analysis is that Bad Banks might get much, much bigger. But we do need an initial core of activists outside Socialist Worker – entire other organisations or groups, if possible – to help us with the campaign, to make it grow much faster.

So I urge everyone who’s not a SW member in this room to take away a truckload of Bad Banks pamphlets and sign-up sheets. You might also consider buying a few copies of UNITY, the magazine which I edit and is bloody good, which gives a few good articles on the problem with the current financial system. We urge you to write your own Bad Banks leaflets! We urge you to set up Bad Banks committees in every area, to spread the idea among your workmates, comrades, sports teams, knitting circles, whatever. And we urge you to keep in contact with Vaughan, our national organiser – send him your experiences on the stalls or wherever, so we can spread the word nationwide. Maybe a Bad Banks convention sometime next year might be a goer, who knows.

Practical politics is based on experiment. Bad Banks is an experiment to see whether we are right that the grassroots are turning away from neoliberal capitalism in their hearts – all they need is access to ideas and analysis which can offer a way forward. We encourage you to be part of the experiment.

“It is easier to rob by setting up a bank than by holding up a bank clerk.”

Global banking class wages war to extend profits and power

A very good article by Stefan Steinberg, International banks exploit the crisis to reap massive profits, from the World Wide Socialist Website exposes the control the powerful banking class is exerting over the world. The big banks are experiencing an obscene return to profitability. Having caused the financial meltdown, then secured trillions and trillions of public money to bail them out, big banks are now making mega-profits through their tight control of credit. They're lending to indebted governments (because of the bail outs and a collapsed global economy) at high interest rates and making a killing. Likewise they're strangling industry in the real economy and profiting on bond speculation. Steinberg writes:

The bailout measures adopted by national governments represent a huge safety net for the banks, enabling them to once again engage in highly speculative forms of financial trading. The levels of debt resulting from the bank bailout packages and other forms of economic stimulus have assumed gigantic dimensions and will be paid for by generations to come. At the same time, the rapid accumulation of debt by governments opens up vast and lucrative opportunities for the banks. Trading in government loans bound up with financial rescue packages is emerging as a central activity of the big banks. Average government debt in the European Union is expected to rise to 80 percent of GDP this year and even higher in 2010. In Britain, government debt is expected to reach 100 percent of GDP in 2009. Japan’s government debt is headed for 200 percent by 2011, and government debt in the US is expected to reach 100 percent of GDP by the same time. As the levels of debt rise across the globe, rating agencies are downgrading the lending status of individual countries, which then have to pay increased interest rates to the banks in order to service their loans. For the banks, it is a classic “win-win” situation. At the same time, banks are refraining from investing in businesses because, as they note euphemistically, “in the current financial climate” the prospects for ordinary companies and industrial enterprises are “too risky.” Confronted with the refusal of the banks to extend credit, industrial and commercial companies are forced to sell corporate bonds at much higher levels of interest. The banks make further profits by speculating in the trading of these bonds.

The banks are waging an aggressive war, out in the economy and through government insiders, to secure their control and wealth at the expense of everyone else. The role of the banks in the global economy needs to be brought to the attention of masses of people who are suffering the fallout of the financial crisis. Strategies need to be thought of that best mobilise people against the banks and others of the global finance class. See also The Joy of Sachs by Paul Krugman.

Bernanke's Financial Rescue Plan: The growing prospect of a U.S. default

by Mike Whitney from Global Research, 6 April 2009 Fed chief Ben Bernanke has embarked on the most radical and ruinous financial rescue plan in history. According to Bloomberg News, the Fed has already lent or committed $12.8 trillion trying to stabilize the financial system after the the bursting of Wall Street's speculative mega-bubble. Now Bernanke wants to dig an even bigger hole, by creating programs that will provide up to $2 trillion of credit to financial institutions that purchase toxic assets from banks or securities backed by consumer loans. The Fed's generous terms are expected to generate a flurry of speculation which will help strengthen the banking system while leaving the taxpayer to bear the losses. It is impossible to know what the long-term effects of Bernanke's excessive spending will be, but his plan has the potential to trigger hyperinflation or spark a run on the dollar. Continue at http://www.globalresearch.ca/index.php?context=va&aid=13077 See also Can Obama's policies fix the economy?

Ralph Nader: Tax the Speculators!

How to Lighten the Income Tax Load on the American Worker by Ralph Nader from Counterpunch 7 February 2009 Let's start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax? Let's further add a point of common sense. The basic premise of taxation should be to first tax what society likes the least or dislikes the most, before it taxes honest labor or human needs. In that way, revenues can be raised at the same time as the taxes discourage those activities which are least valued, such as the most speculative stock market trades, pollution (a carbon tax), gambling, and the addictive industries that sicken or destroy health and amass large costs. So, your member of Congress, who is grappling these days with gigantic deficits on the backs of your children at the same time as that deep recession and tax cuts reduce revenues and increase torrents of red ink, should be championing such transaction taxes. Yet apart from a small number of legislators, most notably Congressman Peter Welch (Dem. VT) and Peter DeFazio (Dem. OR), the biggest revenue producer of all--a tax on stock derivative transactions--essentially bets on bets--and other mystifying gambles by casino capitalism--is at best corridor talk on Capitol Hill. There are differing estimates of how much such Wall Street transaction taxes can raise each year. A transaction tax would, however, certainly raise enough to make the Wall Street crooks and gamblers pay for their own Washington bailout. Lets scan some figures economists put forth. The most discussed and popular one is a simple sales tax on currency trades across borders. Called the Tobin Tax after its originator, the late James Tobin, a Nobel laureate economist at Yale University, 10 to 25 cents per hundred dollars of the huge amounts of dollars traded each day across bordered would produce from $100 to $300 billion per year. There are scores of civic, labor, environmental, development, poverty and law groups all over the world pressing for such laws in their countries. (see tobintaxcall.free.fr). According the University of Massachusetts economist, Robert Pollin, various kinds of securities-trading taxes are on the books in about forty countries, including Japan, the UK and Brazil. Pollin writes in the current issue of the estimable Boston Review: "A small tax on all financial-market transactions, comparable to a sales tax, would raise the costs on short-term speculative trading while having negligible effect on people who trade infrequently. It would thus discourage speculation and channel funds toward productive investment." He adds that after the 1987 stock market crash, securities-trading taxes "or similar measures" were endorsed by then Senate Minority Leader Bob Dole and even the first President Bush. Professor Pollin estimates that a one-half of one percent tax would raise about $350 billion a year. That seems conservative. The Wall Street Journal once mentioned about $500 trillion in derivatives trades alone in 2008--the most speculative of transactions. A one tenth of one percent tax would raise $500 billion dollars a year, assuming that level of trading. Economist Dean Baker says a "modest financial transactions tax would be enough to finance a 10% across-the-board reduction in the income tax on labor." The stock transaction tax goes back a long way. A version helped fund the Civil War and the imperial Spanish-American War. The famous British economist, John Maynard Keynes, extolled in 1936 a securities transaction tax as having the effect of "mitigating the predominance of speculation over enterprise." The U.S. had some kind of transaction tax from 1914 to 1966. The corporate history scholar (read his excellent book, Unequal Protection ) Thom Hartmann, turned three-hour-a-day talk-show-host on Air America (airamerica.com/thomvision), had discussed the long evolution of what he calls a "securities turnover excise tax" to "tamp down toxic speculation, while encouraging healthy investment." So, why don't we have such a mega-revenue generator and lighten the income tax load on today and tomorrow's American worker? (It was one of the most popular ideas I campaigned on last year. People got it.) Because American workers need to learn about this proposed tax policy and ram it through Congress. Tell your Senators and Representatives--no ifs, ands or buts. Otherwise, Wall Street will keep rampaging over people's pensions and mutual fund savings, destabilize their jobs and hand them the bailout bill, as is occurring now. A few minutes spent lobbying members of Congress by millions of Americans (call, write or e-mail, visit or picket) will produce one big Change for the better. Contact your member of Congress. The current financial mess makes this the right time for action.

International banks exploit the crisis to reap massive profits

by Stefan Steinberg from World Socialist Web Site 31 July 2009 At the start of this week, German-based Deutsche Bank announced a huge increase in its profits. The bank reported a net profit of €1.1 billion in the second quarter of this year, nearly doubling its earnings over the same period last year (€645 million). The massive increase in Deutsche Bank's profits follows record earnings for US-based Goldman Sachs. Two weeks ago, the US investment bank posted profits of $3.44 billion (€2.44 billion) in the three months to June. Less than a year after the eruption of a financial crisis that has devastated economies across the globe and wiped out an estimated 40 percent of the world’s wealth, a number of major banks and investment houses are posting record profits and setting aside sharply higher—in some cases, record—sums for salaries and bonuses to their employees. In 2008, Deutsche Bank recorded the biggest losses in its history—€3.9 billion ($5.5 billion). How is this turn-around to be explained? A recent article in Der Spiegel magazine entitled “The Return of Greed—Banks Reopen Global Casino” provides some insight. The article cites a former leading financier, who declares, “A few years ago, the investment banks got rich on their customers’ money. When that resource became too small, they fell back on their shareholders’ money. Now they've got hold of the biggest pool the world can offer: taxpayers’ money.” The article quotes the head of German operations of an international investment bank, who declares, “The taxpayer is paying for the chips at the casino. It doesn't get any better.” Following the collapse of Lehmann Brothers in September 2008, the American government intervened with a massive bailout package. Since then, the US government has initiated programs that could potentially allocate up to $23.7 trillion to support the financial system—a sum equal to 1.7 times America’s gross domestic product. The measures adopted by Washington were copied by governments around the world. At the behest of bankers, in particular, Josef Ackermann, CEO of Deutsche Bank, the German government drew up a €500 billion rescue program for German banks at the end of last year. Since then, it has pledged additional hundreds of billions to the financial community as part of its “bad banks” scheme. It is estimated that since the outbreak of the financial crisis in September 2008, governments have committed a total of $18 trillion in public funds to recapitalise the banking system—an amount equivalent to nearly 30 percent of world GDP. In virtually all major industrial countries, major banks and financial institutions deemed to be “systemically relevant institutions” have been given blank cheques by their respective state treasuries. The bailout measures adopted by national governments represent a huge safety net for the banks, enabling them to once again engage in highly speculative forms of financial trading. The levels of debt resulting from the bank bailout packages and other forms of economic stimulus have assumed gigantic dimensions and will be paid for by generations to come. At the same time, the rapid accumulation of debt by governments opens up vast and lucrative opportunities for the banks. Trading in government loans bound up with financial rescue packages is emerging as a central activity of the big banks. Average government debt in the European Union is expected to rise to 80 percent of GDP this year and even higher in 2010. In Britain, government debt is expected to reach 100 percent of GDP in 2009. Japan’s government debt is headed for 200 percent by 2011, and government debt in the US is expected to reach 100 percent of GDP by the same time. As the levels of debt rise across the globe, rating agencies are downgrading the lending status of individual countries, which then have to pay increased interest rates to the banks in order to service their loans. For the banks, it is a classic “win-win” situation. At the same time, banks are refraining from investing in businesses because, as they note euphemistically, “in the current financial climate” the prospects for ordinary companies and industrial enterprises are “too risky.” Confronted with the refusal of the banks to extend credit, industrial and commercial companies are forced to sell corporate bonds at much higher levels of interest. The banks make further profits by speculating in the trading of these bonds. The article in Der Spiegel comments, “It is a deep irony that the current crisis, which began in the capital markets, is now strengthening the capital markets once again. The volume of bond issues has exploded. In continental Europe alone, companies—not including banks—have borrowed $318 billion [through the sale of bonds] in the first six months of this year...a roughly 50 percent increase over the average of the last three years.” Concomitant with the huge increase in bank profits is an explosion in salaries for bank personnel. According to an estimate by the consulting firm Johnson Associates, salaries throughout the banking industry are expected to rise by an average of 20 to 30 percent this year. Reimbursement for employees at Goldman Sachs is on track to reach an average of $770,000 this year, the highest annual compensation in the bank’s history. Citigroup, which has received $45 billion in cash from the US government on top of more than $300 billion in government guarantees on its assets—and which is now 34 percent owned by the government—plans to increase salaries by 50 percent this year to offset lower bonuses. Other banks, including UBS and Morgan Stanley, are also giving their employees hefty pay raises of between 30 and 60 percent. In Germany, Michael Kemmer, the head of the Bavarian State Bank (BayernLB), which has received tens of billions in state aid to avoid bankruptcy, has defended his plans to pay out huge “motivation” bonuses to his bank’s employees. These staggering compensation packages go disproportionately to top executives and traders, who stand to get salaries and bonuses in the millions and tens of millions of dollars. Presented with unprecedented possibilities for making money, the biggest banks, such as Goldman Sachs, JPMorgan Chase and Deutsche Bank, are going on the offensive and carrying out a deliberate strategy to eliminate their competitors. In Wednesday’s Financial Times, Deutsche Bank head Ackermann pays tribute to the measures taken by governments around the world on behalf of the banks and calls upon them to intensify their efforts to secure the interests of the world's major financial players. Ackermann sweeps aside the charge that the banking community bears responsibility for the present crisis and declares that any moves toward creating smaller banks would be unproductive. Instead, he calls for new measures to protect the interests of “complex global financial institutions,” i.e., major banks such as Deutsche Bank. A leading investment banker with Deutsche Bank, Anshu Jain, told the British magazine Euromoney in May that in future, “What we will see is five to six formidable global players in investment banking.” This elite of investment banking giants will constitute, according to Der Spiegel, a new financial “oligopoly,” with unprecedented access to state treasuries and the taxpayers’ purse. The banks, more than ever, dictate state policy, regardless the particular political coloration of the government. It is the bankers and their lobbyists who call the tune in Washington, Berlin and London. The CEOs of Goldman Sachs, JPMorgan Chase and Deutsche Bank regard the current crisis, for which they are largely responsible, as an opportunity, and they are ruthlessly exploiting it. For the working class, this means an immense intensification in the exploitation of labour and the destruction of all that remains of social gains won in more than a century of struggle. In capitals across the world, governments are preparing a social counterrevolution. This is the significance of the Obama health care scheme and the White House’s intervention to restructure the auto industry in accordance with the profit interests of Wall Street. Confronted with a federal election in a few months, the German government is forced to be more circumspect. Nevertheless, it is already clear that the grand coalition of conservative parties and the Social Democratic Party is quite prepared to allow major industrial companies, such as Opel, to go bankrupt, while plans are already being drawn up for a massive onslaught on the country’s welfare and pensions systems—to be implemented as soon as the election date is passed. The global financial casino poses the danger of even more catastrophic economic and social shocks. If control of the world economy is left in the hands of Ackermann and company, mankind confronts a disaster. Never has there been a more pressing case for the democratic ownership and control of the major financial institutions by the international working class as an integral component of a planned socialist economy.

Worse Than The Great Depression?

by Stephen Lendman from Countercurrents 17 November 2008 It's a minority but growing view, including from 86-year old former Goldman Sachs chairman, John Whitehead, at the November 12 Reuters Global Finance Summit in New York. As disturbing evidence mounts, he said: "I think it would be worse than the depression. We're talking about reducing the credit of the United States of America, which is the backbone of the economic system. I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America.

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The flight to the Dollar - why and for how long?

from meltdown101 26 October 2008 The flight of capital to the dollar has been churning along at breakneck speed over the last week, taking down other currencies with the sole exception of the Japanese Yen. Investors are running home to Mama while waiting to start the Musical chairs again next week and hoping to find one when the music stops.

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Big capital wants profits guaranteed, or they'll pull plug on NZ economy

by Peter de Waal The fact that the NZ Reserve Bank is being forced to cut it's interest rates from 7.5% to 6.5% shows the folly of years of wage-growth restraint and it's destruction of the savings potential of New Zealand's workforce. The Reserve Bank has kept interest rates high to attract foreign "hot capital", just to keep the lights on. This has had a punitive effect on business investment and has lowered productivity. Home owners also pay through the nose for the privilege of mortgage borrowing. In 1987 the rich were able to soak the workers through user-pays as most families owned a home. This time most families under the age of 50 rent – despite the cooked figures the government likes to advance showing around 60% home ownership – there is no spare cash to be mopped up (a reminder to Maurice Williamson, National’s road-toll extraordinaire). Once people are laid off in droves and defaults on mortgages begin in earnest (likely to be shortly after the election) it will start a free-fall in prices, particularly housing, as the money to lend out dries up and mortgages come up for renewal. The fall in returns for farm products and the end of tourism will severely limit the ability of NZ to offer high interest rates to foreign lenders. Hence the call from the right for government guarantees of inter-bank lending. Without guaranteed profits the world’s big banks may just pull the plug on the NZ economy. [Like National, Labour has announced it will guarantee inter-bank lending (see Banks: We will help struggling borrowers, NZ Herald 3 Oct 2008). The Australian owned banks have in turn made some weaselly promises about supporting mortgage borrowers in trouble as a result of the floundering economy. These same banks have made billions of dollars in profits in recent years. Will the banks look to maintain their high profit margins by putting a slow squeeze on New Zealanders mortgaged to the hilt? - UNITYblog editor]

Aussie owned banks sourced 40% of funding from overseas - that's the problem

by Peter de Waal Rod Oram in his article, Doomsayers have got it wrong, in the Sunday Star Times (26 Oct 2008) writes: "Still, the banks deserve criticism. They scooped up easy, low-cost credit overseas over the past decade and aggressively lent it to households here, fuelling the debt-driven consumer and housing boom. In doing so, the banks made a mockery of monetary policy. They showed how ineffectual the Reserve Bank's official cash rate is in guiding the economy." "The second argument for impending financial disaster is equally misjudged. Yes, it's true the four Australian-owned banks that constitute 90% of our banking system are heavily dependent on overseas funding. Because we are such poor savers, they raised 40% of their funding as of February this year from overseas sources for a total of $116.5 billion. That was almost a four-fold increase from $33.5b, or 29.6% of their funding, in December 1998. And, incautiously, they borrow short - on average terms of less than a year - but lend long for the likes of mortgages. That wasn't a problem when the world was awash with credit as it was over the past decade. But it has been a problem since global credit markets began collapsing in August last year." When Oram says, "because we are such poor savers", he means NZ's slave-level wages caused by 25 years of attacks on unions and other wage-growth restraint policies has left 80% of the population with no savings safety net. It also means that the rich are worried that there is not a pool of wealth that can be readily tapped to dig the system out of the mire, unlike after the 1987 crash when most households owned their own dwelling and had savings. The fact that the banks "raised 40% of their funding as of February this year from overseas sources for a total of $116.5 billion" is the real worry. As the fake economy of derivatives and the non-existent assets that underpin them (like sub-prime loans) is around six times the size of the “real” trading economy, and the focus of the international bailouts is a pathetic attempt to pay down this fake economic debt at the expense of the real economy, you can only expect it is going to get much harder to borrow money. On Oram's figures I would remove 40% of available capital and do the numbers again and see what kind of interest rates/house prices/economic picture you come up with.

Essential contradiction of consumer capitalism – keep wages low but keep spending high

Below is a brilliant must-read exposure by Ondine Green of the irrational world of financial speculation and how the bursting of the biggest bubble in history will impact on us in New Zealand. The financial markets are on the verge of complete systematic failure. The kings of finance want us to fall on their swords. As Ondine Green argues, we need to urgently put forward concrete demands which connect with the fears of ordinary people and opens up pathways to a more rationally controlled economy. Henry Ford's genius was to get workers to buy into the system as consumers, by using mass production to make consumer goods affordable. Wages at Ford's factories were set to make sure that a worker could buy one of the cars they made within a reasonable amount of time. However, by introducing the contradiction that the health of capitalism was dependent on workers' purchasing power, the system was made less stable in the long run. The Great Depression was a cycle of attempts to restore profits by cutting wages, thus depressing demand, thus reducing profits. Only massive public works – including rearmament for WW2, especially in USA and Germany – broke the cycle.

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