Adonis Diaries

Perpetrators of financial crisis reap the benefits, politically and financially! Any other cause of social upheavals?

Since WWII and till the fall of the Berlin Wall (end of the Soviet Union empire), the capitalist States, especially the USA and England, made it a fantastic profitable business of borrowing money.

You might think that when you borrow at high interest rate, you are really in great trouble:  That is correct on the individual level and for small enterprises.

On a State level, particularly powerful States, with the right of issuing currency and the power of influencing inflation, the US and England managed to generate 6.3% of their GNP just by keeping inflation over 4% during this entire period.

How that?

Lenders or buyers of State treasury bills discovered that inflation actually resulted in negative return on the interest rate they expected to earn “while sleeping”:  The dept of the States were automatically reduced by more than a 50% because of the frequent devaluation of the currencies.   For example, the public dept of the US of 116% dropped effectively to 66%, and the public dept of England dropped to 138% from the high of 216%.

How that again?

The States reimbursed the nominal value that kept being reduced every year from the inflation level.  Practically, an interest rate of 5% is repaid with a currency devaluing at a 10% rate!  It is the State borrower that pocketed the difference in profit.  The end result was that you deposited your money in banks that lent to the State at rates lower than effective inflation rate.

Why investors grudgingly accepted to be fleeced out of their expected profit? 

It appears investors with cash surpluses had no viable alternatives due to capital control and nationalization of banks policies.

The other risky alternative, against the law and liable of prison terms, was to dispatch bag full of gold bars to foreign banks.

Actually, since 1968, the dollars was constantly floating and ceased to be linked to gold reserve:  The European countries had to cover up for the dollar frequent fluctuations since the dollar was the international currency in the “Free World“, fighting this survival battle with communist Soviet Union!

The dollar was the problem of the other productive “Free countries” and never affected the economic well-being or development of the USA.

During that period, developed States instituted vast social network coverage in health care, early retirement and excellent saving retirement plans…:  People in developed countries can go on extended vacation trips with pocketful of money.

Things have changed quantitatively in the 80’s:  Salaries were reevaluated at the rhythm of inflation, still within capital control policies.

Thus, developing States could no longer generate profit from borrowing extensively, though borrowing was still an excellent means of covering larger public dept.  The current US public dept is about 14 trillion or 14,000 billion and increasing like mad.

Things have changed qualitatively in the 90’s:

The power shifted from States to multinational financial institutions.  States covered up the deficits of banks (bankruptcies) under the excuse that economic chaos will befall society if banks are not salvaged by using people tax money!

After the 2007 financial crisis, most developed States extensively salvaged irredeemable banks with practically no financial preconditions.  The States are bankrupts and entirely reliant on banks and international monetary institutions to cover up budget deficits.

For example, the IMF, World Bank, Europe Central Bank and powerful international financial companies are not reluctant in abusing of blackmailing tactics, unbearable constraints, and issuing ultimatum to less developed borrowing States such as Greece, Portugal, Ireland…

The poorer borrowing States are pressured to balance budgets, and specifically by targeting the previously acquired social network  rights, and the reduction in salaries and retirement benefits…

Liberal capitalism was hardly able to force social democratic States to tampering with a single social right acquisition.

Currently, States are hitting all these social network benefits at the same time, as a national requirement for a “package deficit reduction plan“! State Parliaments are happy satisfying inhuman and brutal constraints set by non-elected, unregulated, and uncontrolled foreign financial institutions.

Liberal capitalists  expect the rights of the richest 10% classes to remain intact!  Unemployment is increasing drastically and free paid jobs are the trend, named “extended training periods“…

The irony is that most chairmen of finance ministries, central banks, and public monetary regulation institutions are former high officers in private international financial companies. 

Tax laws and loopholes are vastly privileging the rich classes.  Indignation is mounting:  It is no longer a matter of financial techniques and gimmicks, but a political and social struggle to redress power imbalance. 

The people and their representatives have to regain the political power and start giving priority to the welfare and the due rights of the common working people.

Note: The colonial wars in the previous centuries were undertook under the excuse that the borrowing nations failed to repay their debts. Spain lost its colonies in Cuba, Philippine… to the USA.  The far eastern countries such as Viet Nam, Laos, Cambodia, Thailand, Burma… were captured militarily by France and England for failing to repay their debts…