The
JvL Bi-Weekly
James
van Luik
Publisher
& Editor
Friday,
August 15th, 2003
Volume
2, No. 15
1.
American Civil Liberties Union on Department of Justice 'Deceit'
2.
A Message from Ramsey Clark
3.
Ten Myths About Nuclear Weapons
4.
The World Unites Against US Militarism
5.
Bush and Clinton: birds of a feather
6.
Some Aspects of the Coming Financial Reality
1.
AMERICAN CIVIL LIBERTIES UNION ON DEPARTMENT OF JUSTICE 'DECEIT'
BY
MICHAEL
KIRKLAND
The Justice Department (DOJ) and the American Civil Liberties Union (ACLU) are at war over what the ACLU says are deliberate misrepresentations of the USA Patriot Act.
The department strongly denies ACLU allegations that it is misleading the public about the sweeping surveillance provisions of the massive anti-terrorism law.
The battle between the civil liberties group and the department is fully joined as Congress considers the proposed USA Patriot II Act, which would extend some of the domestic spying provisions of its predecessor.
At stake is public opinion and the opinion of members of Congress who are being asked to enact or block the proposed law.
The ACLU released a report Wednesday, "Seeking Truth from Justice," that concludes the Justice Department participated in a "pattern of deceit" about the effects of the first USA Patriot Act on average Americans.
"It is time for the Justice Department to stop misleading the American people," the report says. The USA Patriot Act was enacted by Congress in 2001 "with minimal discussion and debate in the panicked weeks after 9-11."
Justice Department spokesman Mark Corallo had just barely glanced at the report Wednesday morning, but his name is all over it. The report repeatedly cites quotes from Corallo and from Attorney General John Ashcroft as examples of misrepresentation.
The quotes were taken out of context, Corallo said, and are missing the qualifiers he made in the second part of his answer to questions.
A frustrated Corallo also urged the public to read the actual language of the act to see if it is being misrepresented.
"The Patriot Act was passed by an overwhelming bipartisan majority of the United States Congress," Corallo said in a phone interview. "It is the single most important tool the congress has given federal law enforcement to prevent terrorist attacks."
He pointed out that "the federal appeals courts have consistently upheld our authority under the USA Patriot Act."
Nor, he said, does the act give the department sweeping new powers.
"The USA Patriot Act simply allows us to apply tools that we already had to fight organized crime and drug trafficking to terrorism," he said. "The Patriot Act goes an extra step in prohibiting investigation of United States citizens and green card holders solely on the basis of their First Amendment activities" – political expression. "That's something that our critics never mention."
Corallo repeatedly urged members of the public to read the act and decide for themselves about its effects.
"When the average American reads the act and sees that language, they understand that what we are doing is protecting them from terrorism and protecting their civil liberties," he said.
In a statement announcing the release of Wednesday's report, the ACLU said that it has "found a consistent pattern of factually inaccurate assertions by the Department of Justice in statements to the media and Congress, statements that mischaracterize the scope, potential impact and likely harm of the now-notorious … act.
The report contrasts Justice Department statements about the act with the language of the act itself, the ACLU statement said.
"If the Justice Department wishes to convince the American people and their elected representatives that it carries the Constitution with it at all times during its prosecution of the war on terror, it must be conscientious with the truth," Laura W. Murphy, director of the ACLU Washington Legislative Office, said in the statement.
"That the department and its allies would repeatedly misrepresent the scope and nature of new surveillance powers is troubling, to say the least," said Ann Beeson, ACLU associate legal director.
The statement particularly targeted what it called the department's "repeated assertion that the USA Patriot Act's surveillance provision's cannot be used against US citizens. In fact, the surveillance provisions are applicable to citizens and non citizens alike. Some of the surveillance provisions can be used even against citizens who are not suspected of espionage, terrorism or crime of any kind."
The statement also cited what it said was the department's "repeated assertion that section 215 of the Patriot Act which permits the government to demand that any organization – including a library, bookstore, or hospital – turn its records over to the FBI, cannot be invoked unless the government can show 'probable cause.' In fact," the statement said, "The law contains no such restriction. Section 215 requires only that the government declare that the records are 'sought for' an on going investigation. The 'sought for' standard is an extremely lenient one, and it bears no resemblance to 'probable cause.'"
The statement added that "the standard is so low is especially troubling in light of the attorney general's recent acknowledgement (at a June 2003 congressional hearing) that the FBI could use section 215 to obtain not only library and bookstore records but also computer files, educational records, and even genetic information."
The full report is accessible from aclu.org.
It quotes Justice Department officials in newspaper stories across the country.
Among the "half-truths" cited by the report is the Justice Department assertion that investigators must "convince a Judge" to obtain records under section 215.
The language of the act, the report says, only requires certification that the records are needed, not proof of any kind.
Among the outright "falsehoods" cited by the report is a Justice Department's assertion that investigators have no interest "in looking at the book preferences of Americans."
"Democratic societies are based on checks and balances," the report says, "not on blind faith in the good intentions of government officials."
The report points to a Justice Department inspector general's investigation that found abuses of illegal immigrants detained in the wake of the Sept. 11, 2001, terror attacks.
2.
A message from ramsey clark: write a letter to the editor
To the Vote ToImpeach Membership:
One of the few ways the issue of impeachment and faith in the Constitution can find their way into the corporate controlled media is through Letters to the Editor. Help the truth set the American people free and take back the Constitution. Write newspapers and periodicals, large and small, proclaiming the duty of those who care about truth and the Constitution to demand the impeachment of President Bush and his chosen few.
Bush and Co. have lied about weapons of mass destruction and the grave threat Iraq posed to the United States, have violated the Constitution, the Nuremberg Charter and Geneva Conventions by waging wars of aggression against Afghanistan, Iraq and threatening other nations, summarily executing and killing tens of thousands of people while leading a growing number, now over 200, of young American men and women in the US Armed Forces to death in their criminal war and occupation of Iraq. They have attacked the civil rights and civil liberties of the people of the United States in their efforts to tear apart the Bill of Rights and reverse decades of hard-won social justice accomplishments.
Let's let our friends, neighbors and communities know about the efforts to impeach George W. Bush, Richard B. Cheney, Donald Rumsfeld and John Ashcroft, and how they can join this campaign.
Sincerely,
Ramsey Clark
Send copies of your Letters to the Editor to your Congressperson, and send us a copy of your published letters either by email at [email protected] or by mail to VoteToImpeach c/o 1901 Pennsylvania Ave. NW, Suite 607, Washington, DC 20006 – and be sure to let us know where your letter has been published! As space is available, we will republish letters on the VoteToImpeach site.
3.
Ten Myths about nuclear weapons
by
David
Krieger and Angela McCRACKEN
1. Nuclear weapons were needed to defeat Japan in World War II.
It is widely believed, particularly in the US, that the use of nuclear weapons against the Japanese cities of Hiroshima and Nagasaki was necessary to defeat Japan in World War II. This is not, however, the opinion of the leading US military figures in the war, including General Dwight Eisenhower, General Omar Bradley, General Hap Arnold and Admiral William Leahy. For example General Eisenhower: "I voiced [to Secretary of War Stimson] my grave misgivings, first on the basis of my belief that Japan was already defeated and that dropping the bomb was completely unnecessary…." Not only was the use of nuclear force unnecessary, its destructive force was excessive, resulting in 220,000 deaths by the end of 1945.
2. Nuclear weapons prevented a war between the United States and the Soviet Union.
Many people believe that the nuclear standoff during the Cold War prevented the two superpowers from gong to war with each other, for fear of mutually assured destruction. While it is true that the superpowers did not engage in nuclear warfare during the Cold War, there were many confrontations between them that came uncomfortably close to nuclear war, the most prominent being the 1962 Cuban Missile Crisis. There were also many deadly conflicts and "proxy" wars carried out by the superpowers in Asia, Africa and Latin America. The Vietnam War, which took several million Vietnamese lives and the lives of more than 58,000 Americans, is a prominent example. These wars made the supposed nuclear peace very bloody and deadly. Lurking in the background was the constant danger of a nuclear exchange. The Cold War was an exceedingly dangerous time with a massive nuclear arms race, and the human race was extremely fortunate to have survived it without suffering a nuclear war.
3. Nuclear threats have gone away since the end of the Cold War.
In light of the Cold War's end, many people believed that nuclear threats had gone away. While the nature of nuclear threats has changed since the end of the Cold War, these threats are far from having disappeared or even significantly diminished. During the Cold War, the greatest threat was that of a massive nuclear exchange between the United States and the Soviet Union. In the aftermath of the Cold War, a variety of new nuclear threats have emerged. Among these are the following dangers:
· Increased possibilities of nuclear weapons falling into the hands of terrorists who would not hesitate to use them;
· Nuclear war between India and Pakistan;
· Policies of the US government to make nuclear weapons smaller and more usable;
· Use of nuclear weapons by accident, particularly by Russia, which has a substantially weakened early warning system; and
· Spread of nuclear weapons to other states, such as North Korea, that may perceive them to be an "equalizer" against a more powerful state.
4. The United States needs nuclear weapons for its national security.
There is a widespread belief in the United States that nuclear weapons are necessary for the US to defend against aggressor states. US national security, however, would be far improved if the US took a leadership role in seeking to eliminate nuclear weapons throughout the world. Nuclear weapons are the only weapons that could actually destroy the United States, and their existence and proliferation threatens US security. Continued high-alert deployment of nuclear weapons and research on smaller and more usable nuclear weapons by the US combined with a more aggressive foreign policy, makes many weaker nations feel threatened. Weaker states may think of nuclear weapons as an equalizer, giving them the ability to effectively neutralize the forces of a threatening nuclear weapons state. Thus, as in the case of North Korea, the US threat may be instigating nuclear weapons proliferation. Continued reliance on nuclear weapons by the US is setting the wrong example for the world, and is further endangering the country rather than protecting. It. The United States has strong conventional military forces and would be far more secure in a world in which no country had nuclear arms.
5. Nuclear weapons make a country safer.
It is a common belief that nuclear weapons protect a country by deterring potential aggressors from attacking. By threatening massive retaliation, the argument goes, nuclear weapons prevent an attacker from starting a war. To the contrary, nuclear weapons are actually undermining the safety of the countries that possess them by providing a false sense of security. While deterrence can provides some psychological sense of security there are no guarantees that the threat of retaliation will succeed in preventing an attack. There are many ways in which deterrence could fail, including misunderstandings, faulty communications, irrational leaders, miscalculations and accidents. In addition, the possession of nuclear weapons enhances the risks of terrorism, proliferation and ultimately nuclear annihilation.
6. No leader would be crazy enough to actually use nuclear weapons.
Many people believe that the threat of using nuclear weapons can go on indefinitely as a means of deterring attacks because no leader would be crazy enough to actually use them. Unfortunately, nuclear weapons have been used and it is likely that most, if not all, leaders possessing these weapons would, under certain conditions, actually use them. US leaders, considered by many to be highly rational, are the only ones who have ever actually used nuclear weapons in war, against Hiroshima and Nagasaki. Outside of these two bombings, the leaders of nuclear weapons states have repeatedly come close to using nuclear weapons. Nuclear deterrence is based upon a believable threat of nuclear retaliation, and the threat of nuclear weapons use has been constant during the post World War II period. US policy currently calls for the use of nuclear weapons in response to an attack with chemical or biological weapons against the US, its troops or allies. One of the premises of the US argument for preventative war is that other leaders would be willing to attack the US with nuclear weapons. Threats of nuclear attack by India and Pakistan provide still another example of nuclear brinkmanship that could turn into a nuclear war. Globally and historically, leaders have done their best to prove that they would use nuclear weapons. Assuming that they would not do so is unwise.
7. Nuclear weapons are a cost-effective method of national defense.
Some have argued that nuclear weapons, with their high yield of explosive power, offer the benefit of an effective defense for minimum investment. This is one reason behind ongoing research into lower-yield tactical nuclear weapons, which would be perceived as more usable. The cost of nuclear weapons research, development, testing, deployment and maintenance, however, exceeded $5.5 trillion by 1996, according to a study by the Brookings Institution. With advances in nuclear technology and power, the costs and consequences of a nuclear war would be immeasurable.
8. Nuclear weapons are well protected and there is little chance that terrorists could get their hands on one.
Many people believe that nuclear weapons are well protected and that the likelihood of terrorists obtaining these weapons is low. In the aftermath of the Cold War, however, the ability of the Russians to protect their nuclear forces has declined precipitously. In addition, a coup in a country with nuclear weapons, such as Pakistan, could lead to a government coming to power that was willing to provide nuclear weapons to terrorists. In general, the more nuclear weapons there are in the world and the more nuclear weapons proliferate to additional countries, the greater the possibility that nuclear weapons will end up in the hands of terrorists. The best remedy for keeping nuclear weapons out of the hands of terrorists is to drastically reduce their numbers and institute strict international inspections and controls on all nuclear weapons and weapons-grade nuclear materials in all countries, until these weapons and the materials for making them can be eliminated.
9. The United States is working to fulfill its nuclear disarmament obligations.
Most US citizens believe that the United States is working to fulfill its nuclear disarmament obligations. In fact, the US has failed to fulfill its obligations under Article VI of the Nuclear Non-Proliferation treaty, requiring good faith efforts to achieve nuclear disarmament, for more than 30 years. The US has failed to ratify the Comprehensive Test Ban Treaty and has withdrawn from the Anti-Ballistic Missile Treaty. The 2003 Strategic Offensive Reductions Treaty (SORT)with Russia takes strategic nuclear weapons off active deployment, but has no provisions for verification or systematic reduction and it fails to adhere to the principle of irreversibility agreed to at the 2000 Non-Proliferation Treaty Review Conference. The Treaty seeks maximum flexibility for rearmament rather than irreversible reductions in nuclear arms. Nuclear weapons taken off active deployment will be put in storage where they will actually become more vulnerable in both the US and Russia to theft by terrorists. In the year 2012 the treaty will end, unless extended.
10. Nuclear weapons are needed to combat threats from terrorists and "rogue states."
It has been argued that nuclear weapons are needed to protect against terrorists and "rogue States." Yet nuclear weapons, whether used for deterrence or as offensive weaponry, are not effective for this purpose. The threat of nuclear force cannot act as a deterrent against terrorists because they do not have a territory to retaliate against. Thus, terrorists would not be prevented from attacking a country for fear of nuclear retaliation. Nuclear weapons also cannot be relied on as a deterrent against "rogue states" because their responses to a nuclear threat may be irrational and deterrence relies on rationality. If the leaders of a rogue state do not use the same calculus regarding their losses from retaliation, deterrence can easily fail. As offensive weaponry, nuclear force only promises tremendous destruction to troops, civilians and the environment. It might work to annihilate a rogue state, but the amount of force entailed in using nuclear weaponry is indiscriminate, disproportionate and highly immoral. It would not be useful against terrorists because strategists could not be certain of locating an appropriate target for retaliation.
4.
The world unites against u.s. militarism
by
the
coAlition of anti-war groups
The people in Iraq want the US occupation to end. The US soldiers in Iraq want to come home. On Saturday, October 25th, tens of thousands of people in the US, joined by delegations from countries around the world, will go back into the streets to demand: End the Occupation, Bring the Troops Home Now! Under the banner, "The World Unites Against US Militarism, " the demonstration, marching from the Justice Department to the White House to the Pentagon, will also demand an end to the looting and destruction of social programs by the Bush Administration.
The Bush Administration lied to the people, to the Congress, and to the United Nations as it raced to wage war against Iraq. The Bush administration is now carrying out a cover up of its lies and deceptions.
Every day, people are dying as a consequence of this illegal occupation. Every day human misery expands in the drive for world empire and corporate globalization. Every day, vital social programs that serve and protect working people in the US are being destroyed as the Bush administration cynically manipulates the slogan of the "war on Terrorism" to carry out the social transfer of wealth from the bottom to the top. It has served as a public relations ploy for their Robin-Hood-in-reverse politics. Stopping Bush's war abroad and his war at home is a matter of life and death. None of us has the luxury of waiting. The time to act is now.
Tens of thousands of Iraqis and hundreds of US GIs have been killed and maimed. As the anger of the Iraqi people will inevitably grow, the body count on both sides will sharply increase.
As the anti-war movement predicted, the Iraqi people view US forces as colonial occupiers, not liberators. US troops, frightened by the hostile environment and encouraged by the racist climate created by the military brass, are killing and being killed in a war that serves only the interest of US oil monopolies and corporate elites – George W. Bush's real constituents. US soldiers and their families are now realizing that high government officials, mostly millionaires who shuttle between corporate boardrooms and government posts, are using US troops as a private security detachment for Corporate America's plunder of Iraq's oil riches.
The Saturday October 25th International March on Washington will include delegations invited from countries around the world whose banners will represent resistance to the threat posed by the Bush Administration's hyper-aggressive "preemptive war" strategy. The Bush Administration has also just won approval from Congress to proceed with the creation of a new generation of tactical nuclear weapons explicitly designed to be used in the Third World in coming conflicts. The march will demand an immediate end to this new nuclear arms race.
As we continue the movement in opposition to the occupation of Iraq, we must also oppose the daily threats against the people of Palestine, Afghanistan, Iran, Korea, Cuba, the Philippines, Colombia, Liberia, Zimbabwe, and all others that are targets of the Bush administration.
The demonstration will be followed on October 26th by an assembly with international delegates from the global anti-war movement to assess and strategize challenging the Bush Administration's war drive and the component assault on civil rights and civil liberties taking place in many countries under the cloak of "national security" laws, including the Patriot Act in the US.
THE WAR AT HOME
The Bush administration will spend $2.7 trillion in a vast expansion of the US military-industrial apparatus, while eliminating or severely cutting taxes for Corporate America and the one percent of the richest part of the US population to the tune of $1 trillion. The administration is pursuing a calculated strategy to create a fiscal crisis inside the US so that lawmakers will be compelled to cut or eliminate social programs for which there will no longer be funds.
Pentagon officials now admit that they intend for the US to maintain at least 150,000 troops in Iraq for the "foreseeable future," while the cost of the US war in and occupation of Iraq is nearly $4 billion a month, a "burn rate" that will also continue.
The government of the richest country in human history is spending more for war than any government in human history and has its troops stationed in more that 750 military installations and bases located in more than 130 countries all over the world. This is the means by which the Bush administration, the Pentagon and corporate America are advancing the goal of Empire.
The rapid expansion of US militarism under the Bush administration is not only a threat to the people of the world, it is a calculated assault on the standard of living and rights of working people. Bush, Cheney, Rumsfeld, Wolfowitz have a plan to destroy every social reform that has been achieved since the 1930s. What are they seeking to destroy or privatize? Social Security, Medicare, Medicaid, public education, affirmative action, civil rights, women's rights, reproductive health, lgbt rights, environmental protections, and any other programs or social rights that are perceived as either a restriction on corporate power and profits or are a focus of attack by the ultra-rightist's political program. Under the Bush Administration, the war at home has also meant a rise in attacks against communities of color. Police brutality against the African American and Latino communities in particular have escalated, from New York City to Ohio and across the country.
The October 25-26 weekend is also the second anniversary of the signing of the so-called Patriot Act authorizing political arrests, indefinite detentions and domestic spying. As the Bush administration – which only came to power due to massive racist disenfranchisement and voting fraud – violates international law it has been systematically engaged in a campaign of division and repression in the Untied States including a wholesale assault on the Bill of Rights, institutionalization of racial profiling, and aggregation of near dictatorial powers to the Executive branch. The demonstration will be a political challenge to the attack on civil rights and civil liberties and the expansion of the system of repression in the US and in countries around the world which have also adopted new repressive National Security laws.
The people of the world went into the streets in unparalleled global mobilizations before the war started. On October 25th, we will go into the streets again. The anti-war, civil rights and social justice movement, whose ranks are being joined in ever increasing numbers by the family members of military personnel and US veterans, can create the effective political force that will end the occupation of Iraq and bring the troops home immediately. It was only the people's movement that ended the invasion and occupation of Vietnam and it will be the global people's anti-war movement that will help end the US occupation of Iraq.
5.
BUSH AND CLINTON: BIRDS OF A FEATHER
BY
MATTHEW
RIEMER
Undoubtedly, all the die hard political partisans were shocked this week when Bill Clinton came out and essentially exonerated the Bush administration for its manipulation of critical intelligence and lying to the world in support of its drive to war.
Clinton told Larry King: "You know, everybody makes mistakes when they are president. I mean, you can't make as many calls as you have to make without messing up once in awhile. The thing we ought to be focused on is what is the right thing to do now. That's what I think."
The former president also went on subtly to bolster the Bush administration's case for war: "People can quarrel with whether we should have more troops in Afghanistan or internationalize Iraq or whatever, but it is incontestable that on the day I left office, there were unaccounted for stock of biological and chemical weapons."
Yet it shouldn't really come as too much of a surprise for an expert at lying to step forward and defend another of his ilk. Clinton has been called a wonderful Republican president, and the two men and their foreign policies are more similar than most will even care to consider.
But perhaps the greatest parallel between the two rulers is that they were (one of them still is) both involved in incidents where manipulated or fabricated intelligence was used to carry out their militaristic agendas and then sold that agenda to the public.
Everyone's read a thousand articles and op/eds by now regarding the Bush administration's intentional inclusion of intelligence that was widely known to be untrue to further sensationalize its argument for preemptive action in Iraq. But how many have read about the Clinton administration's Tomahawk cruise missile strike on a pharmaceutical factory in Khartoum, Sudan in 1998, and how it was based on bogus intelligence?
In August of 1998, the US destroyed a factory owned by the al-Shifa pharmaceutical company because Washington alleged that the factory was making "precursors" for chemical weapons, was being supported by Osama bin Laden, and was shipping these "precursors" to Iraq. It was soon revealed that the factory had contracts with the UN and was part of the Oil for Food program, supplying vital medicines to Iraq. A British engineer, who helped design and worked at the factory, came out and said the Clinton administration's claim was outrageous. Soil samples for the site all tested negative for any indication of the chemicals claimed to be in use at the factory. Finally, the owner of the plant, whose law firm was based in Washington, pressured the Clinton administration to prove their allegations and they backed down. For a comprehensive report on the incident, see "The destruction of the al-Shifa pharmaceutical company."
6.
SOME ASPECTS OF THE COMING FINANCIAL REALITY
(An
Interview with Economist Michael Hudson)
BY
STANDARD
SCHAEFER
The war in Iraq is allegedly over, interest rates are going lower and there are rumors of recovery although the economy is still in the doldrums. A Bush president, but an election is around the corner. It sounds a bit like the recession of 1990 – 1991. In fact, the recovery from that period, anemic as it was marked by very little growth in employment – was actually stronger than this one. The US economy grew at an annual rate of 3.1% compared to the 2.6% annual rate currently. Except for the 1992 recovery, the last seven economic recoveries were much stronger than this one, and each of them, corresponded with the usual amounts of job creation. So far, the current unemployment rate has actually edged higher to 6.4%, and among African-Americans is twice as high. Meanwhile the mainstream financial press has been arguing that the virtue of "jobless recoveries" is even higher rates of profitability for corporations.
Generally echoing he jingoism of the general media, financial publications such as The Wall Street Journal, The Economist and Business Week have chosen to highlight the job growth in one sector – services. The refinancing boom, as they argue, contribute to the service sector by promoting the retail industries: lower mortgage payments mean more money for consumer goods. But, in this case, it also means all-time high rates of consumer debt. The Federal Reserve continues to exacerbate this problem, most recently by dropping rates once again, ostensibly to stave off deflation. The financial press celebrated the move by hyping the stock market. Little attention was paid to the fact the Fed itself admitted that the main reason for the rate cut was that the economy "has yet to exhibit sustainable growth."
Meanwhile, the 2003 federal budget—thanks in part to Bush's war and his reckless tax cuts-is expected to approach a $500 billion shortfall this year. In comparison, Clinton's tax increases were almost progressive. His deficit reduction and spending restraint kept interest rates low and spurred the investment boom. Capital gains taxes from investment played a major role in creating the $236 billion budget surplus in 2000. Today, however, those taxes have been cut, along with dividend taxes and the massive federal deficit has begun to wreak havoc on the states' budgets. California's $38 billion shortfall is a nationwide all-time record. Thirty-eight other states are in situations nearly as dire. This, of course, means there will be huge layoffs in the public sector. And unemployment means no pricing power for labor, no wages to pay off debts accrued during the bubble, a potential wave of foreclosures and a resulting set of layoffs in the service sector.
On July 1st, as the state legislatures began their new fiscal year, I spoke with heterodox economist and historian Michael Hudson, one of the few with both real experience inside the financial services sector. Professor Hudson is presently writing a book on the increasing dominance of the financial industry over industrial production.
Standard Schaefer: Today's interest rates are the lowest since the 1958 recession, but the economy is essentially stagnant. What is your take on the Federal Reserve's interest rate policy?
Michael Hudson: The first effect of these low rates is to benefit the banks. That's the aim of central bankers today. Whether it benefits the economy at large is another matter.
The banking system's cost of obtaining funds is now almost as low a it was after World war II. But long-term rates for mortgages and credit cards have not fallen. So the lending margins of banks have widened, increasing their earnings. US banks have managed to avoid bearing the brunt of the stock-market losses by passing their bad stock investments and bad debts on to their customers the pension fund and mutual funds. Labor and its savings have borne the brunt of the post-2000 market downturn. It's the people who put their trust in banks and other financial managers that are on the short end of the stick.
The rates that have responded most significantly to lower borrowing costs are short-term loans for financial speculation, above all for derivatives and related buying or selling of stocks and bonds on margin—enormous gambles on which way the dollar, the stock market and interest rates may go. This kind of lending does not help the economy invest more in fixed capital formation. It merely helps create a thriving and profitable new bank business.
As interest rates have fallen, home owners and businesses have found their income able to support a larger debt pyramid. Instead of using the decline in interest rates as an opportunity to pay down their debt, they have borrowed more. Mr. Greenspan has encouraged them to do this so that they can go out and spend more money, creating more profits for producers of the goods they buy. This is the first time in history an economic planner has advised people that they can live better and the economy can grow faster by running deeper into debt.
However, if and when interest rates rise, carrying charges on most peoples' debts will jump sharply, especially for real estate. And many debtors may find themselves with negative equity in the property they have bought. By that, I mean that the price of their home may fall to less than they owe on the mortgage.
SS: You have said that governments always are complicit in creating economic bubbles. How so?
MH: The driving force has been the government's attempt to cope with debt obligations beyond its foreseeable ability to pay. Creating a bubble has been a way to solve their public debt problem—and to pay off political insiders at the same time, thereby killing two birds with one stone. The simplest solution is to get people voluntarily to swap their government bonds—or in today's case, their Social security entitlements—for stocks that then can be permitted to fall in price, once the investment no longer is the government's responsibility. For this to occur, it is necessary to prime people to expect that stock prices will rise sharply. They have to see fortunes being created in a new speculative run-up, and their imaginations as to a glorious new future need to be piqued. This may help explain today's privatization scheme for Social Security. There actually is a dual problem.
On the one hand, the US Government has future obligations that it claims it will have difficulty in paying. This actually is not the case, but there is another factor at work. That factor is the desire by financial institutions to make money off a new stock run-up, and to find a vast new source of money management fees for their executives. Employees are obliged to accumulate savings in the form of the income withheld from their paychecks by F.I.C.A. withholding for Social Security and Medicare, and put into government bonds in the accounts of these two government agencies.
The financial sector is looking at these funds like a shark that sees nice juicy prey swimming in the water. They would love to get their hands on Social Security and Medicare funds to manage, at 2% or even 1%. This would amount to tens of billions of dollars annually, not including the speculative gains that could be made on the turbulent market run-up.
SS: How are the Fed's bubble-promoting policies contributing to this move to privatize Social Security?
MH: First of all, it was Alan Greenspan who lowered interest rates early in the 1990s when the stock market boom began to flag. Despite the fact that he talked about "irrational exuberance," he made speculation rational by channeling the flow of funds to inflate the bubble.
He could have raised margin requirements on stocks. That is the time-honored way of discouraging borrowing that is used to bid up the price of stock. Or, Mr. Greenspan could have increased bank reserve requirements against deposits lent out to stock speculators. Or he could simply have told the banks to slow down on stock market lending if they did not want to see such requirements being imposed. But he did none of these things. He felt that inflating the bubble was what was making his reputation as a financial genius. This explains why he is repeating his policy of lowering interest rates today and flooding the financial sector with cheap credit. Yet this money is not being invested in creating new means of production or employing more labor.
This brings us to the scenario for privatizing Social Security. If the system's gigantic holdings of government bonds are sold off (with the Federal reserve Bank supplying the funds to monetize the requisite credit) and put into the stock market, this rush of funds is going to push up stock prices. It will inflate the new bubble that is being promised, which will be called a "recovery." Stocks will be pushed up for a few years as more paycheck withholding is channeled into Social Security than out-payments are made to retiring Baby Boomers.
SS: This sounds like a winning political program. If it makes Americans richer—or even if it just makes them feel richer—shouldn't they support a financial boom along these lines?
MH: The turning point will come just before the point is reached where more people retire than are entering the employment market. Stocks will begin to be sold off as institutional money managers dump their holdings, mainly onto their clients and small investors who do not realize that the wind is changing. The stock market will collapse. But the policy will have succeeded in getting people to give up their claims on the government for payment. When the dust settles, the government balance sheet will be freed of its Social security and Medicare obligations. That's the basic objective.
Public officials and newspaper commentators will wring their hands and exclaim, "Well, you see the madness of crowds. People are greedy." But who really will be to blame? The crowds will have been doing what the professionals advised them to do. This bubble is a symptom of the madness of crowds mainly to the extent that it is a psychologically orchestrated disinformation program.
(For the complete 22 page interview of Michael Hudson by Standard Schaefer go to the archive for July 11th, 2003 of :