Economic historians have long recognized that one of the biggest mistakes deepening and prolonging the Great Depression was the establishment of beggar-thy-neighbour policy wars, like trying to protect domestic production by imposing protective tariffs. But these tariffs hurt everyone, because the reduction in world trade depressed demand and production to a greater extent than tariffs protected production. The US contribution to this debacle was the infamous Smoot-Hawley Tariff Act, passed by Congress and signed into law in June 1930. Smoot-Hawley raised the already high tariffs of the US by an average tariff by 20%. This prompted retaliatory — i.e., beggar-thy-neighbour — tariff increases in about two dozen other countries, thereby contributing materially to a collapse of world trade by two-thirds between 1930 and 1934 and materially worsening the global depression. FDR began to reverse course by reducing tariffs in 1934, but the damage was done. Some historians have argued that nationalistic beggar-thy-neighbor policies in the Depression’s early years contributed to the rise in political extremism in Europe and to a lesser extent in the US.
The information contained in the attached report by Professor Michael Hudson suggests beggar-thy-neighbor policies are again raising their ugly heads. This time, they are taking the form of the predatory financial policies evolved by the US and its copycats in the Eurozone, who are trying to handoff the pain to each other and others in the world economy. Whereas Smoot-Hawley related directly to the real economy of production and consumption, and in that sense was at least theoretically related to the well being of the working class, the predatory financing policies described below are both parasitic and speculative. They benefit an already wealthy financial class that does not produce things. Moreover, the pattern of speculation described below may be even more dangerous economically, because, it is being financed by the Federal Reserve’s quantitative easing policy, which like TARP, has the effect of postponing inevitable asset revaluations (downward) and debt liquidations, thereby feeding a festering cancer that is threatening to metastasize into a full-blown global debt deflation — i.e., a collapse of demand and consumer confidence via a massive repudiation and/or liquidation of debts.
Ominously, like the 1930s, right-wing political extremism is again on the march, but this time that extremism is evolving more rapidly in the US than in Europe.
I urge you to read the attached report carefully and … fasten your seat belts.
October 11, 2010
A CounterPunch Special Report
“Who Needs an Army When You Can Obtain the Usual Objective (Monetary Wealth and Asset Appropriation) Simply by Financial Means?”
By MICHAEL HUDSON, Counterpunch
“Coming events cast their shadows forward.”
What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.
Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy’s banking system can create the most credit, using an army of computer keyboards to appropriate the world’s resources. The key is to persuade foreign central banks to accept this electronic credit.
Phi Beta Iota: The obvious global response could be–should be–the immediate nationalization and expropriation of all US corporate “assets” derived from a history of predatory capitalism in the context of virtual colonialism and unilateral militarism. This means that the US stock market will crash again. It could mean that domestically the US could begin to see local movement expropriating land from absentee landlords such as the mega-agriculture companies that have destroyed agriculture, communities, and the land. These are interesting times. Washington is operating on 2% of the relevant information, lacks integrity, and has zero focus on “the public interest.”