Note: The longer version was published on October 26, 2008:
Special Report: War or Peace? The World After the 2008 U.S. Presidential Election By Richard C. Cook
November 22, 2008
The World After the 2008 U.S. Presidential Election
World war or world peace could be the blunt choice that will face either Barack Obama or John McCain when one of them is elected president of the United States on Tuesday, November 4, 2008.
For a major eruption of violence to be averted, the new president must deal positively with the reappearance of Russia on the world stage, the emergence of China as an economic force, and the aspirations of all the nations on earth for a decent and secure way of life.
Making matters much more dangerous are the ongoing financial crisis, along with what appears to be the start of a worldwide economic recession.
It is Europe, not the U.S., from which proposals are emerging for a transformative approach to the most compelling issues. But will it be enough?
THE DISASTROUS PRESIDENCY OF GEORGE W. BUSH
In December 2000, at the time the U.S. Supreme Court was intervening in the disputed vote count in Florida to name Republican George W. Bush president over Democrat Al Gore, the U.S. stock market began to crash. The “dot.com” bubble, based largely on foreign investment in internet companies and technology stocks, deflated. By the time Bush was inaugurated in January 2001, signs of a recession were appearing.
This did not prevent the Bush administration from initiating a $450 billion tax cut for the upper income brackets that Congress approved in March 2001. A similar cut was subsequently enacted in May 2003.
On September 11, 2001, the World Trade Center’s Twin Towers in New York City were attacked by airplanes flying into them, followed that morning by an air attack on the Pentagon in Washington, D.C. Al Qaeda was blamed.
Within a few weeks, the Bush administration pulled a battle plan from the shelves of the Pentagon and invaded Afghanistan. The object was to wrest control of that nation from the Taliban, supposedly Al Qaeda collaborators. A new U.S. Asian land war had begun.
In March 2003, the Bush administration added to the Afghan action the second invasion of Iraq in the past thirteen years, following the “Shock and Awe” aerial attack. The assaults on Afghanistan and Iraq, with torture of prisoners, use of depleted uranium weapons, and killing of civilians, was methodical and brutal.
Behind the scenes were the international financial and oil interests who stood to benefit from the removal of Iraqi president Saddam Hussein as an independent actor in the Middle East. Even so, the Neocons—“new conservatives”—who had rushed to the forefront after September 11, 2001, working chiefly through Secretary of Defense Donald Rumsfeld and Vice-President Richard Cheney, seemed to be a more radical element. At least more than the officials who had been in charge during the Clinton years, when the U.S. and NATO went to war against Serbia. Many of the Neocons were Jewish, with strong ties to Israel.
In 1997 the Neocons had created the Project for a New American Century, which advocated a new invasion of Iraq, and published a statement that positive change might result from a “catalyzing event—a new Pearl Harbor.” Later this was interpreted as possibly having foreshadowed the 9/11 attacks.
President George W. Bush justified the Iraq invasion by claiming that the regime of Saddam Hussein possessed weapons of mass destruction. Later this claim proved to be untrue.
To many the attack was a simple act of aggression. Kofi Annan, Secretary General of the U.N. said of the invasion on September 16, 2004, “I have indicated it was not in conformity with the U.N. charter. From our point of view, from the charter point of view, it was illegal.” The U.S. paid no attention to Annan’s misgivings.
WARS ARE NOT CHEAP
Starting in 2001, the Bush administration had increased the frequency of White House meetings with Alan Greenspan, chairman of the Federal Reserve, who lowered interest rates by 550 basis points from January 2001 to June 2003. This succeeded in floating the U.S. economy through injecting a huge amount of cash by means of what came to be called the “housing bubble.”
Beginning around 1991-92, with cheap credit now flowing from the Federal Reserve System, home prices soared. The money from new mortgages and home equity loans became a virtual “cash cow” for families strapped for cash.
The federal government had already been taking steps during the 1990s to ease mortgage credit so that more families could purchase homes. But after 2001, many more loans were based on fraudulent mortgage applications, where brokers exaggerated borrower incomes. ABC News later reported that during this period risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
On Wall Street, banks that wrote mortgages began to offload them by packaging them into mortgage-backed securities that were sold around the world as bonds to banks and investors. Risk analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Also, mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at higher rates in future years. Mortgage brokers fed the growing bubble by telling people they should buy now, because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
As a result of the bubble, large amounts of money began to flow into the U.S. economy, not only from mortgages and home equity loans, but also from capital gains on the resale of inflating property. Meanwhile, in the world of investment securities, the Securities and Exchange Commission reduced the amount of their own capital investors were required to bring to the table, resulting in a large increase in bank leveraging of speculative trading. This fed additional bubbles in the equity, hedge fund, derivatives, and commodities markets.
According to a February 2008 Washington Post article by New York governor Elliot Spitzer, state attorneys-general who wanted to investigate allegations of mortgage fraud were blocked from doing so by the Office of the Comptroller of the Currency within the U.S. Treasury Department. There was no federal agency charged with regulating mortgage fraud to take up the slack.
Thus it appeared that a major part of U.S. economic growth was tainted by outright criminality. But the housing and investment bubbles generated enough economic activity and tax revenues through 2006 to allow the Bush war policy to be implemented.
George W. Bush was reelected in 2004 at the height of the bubbles. By 2005, the housing bubble alone was accounting for half of all U.S. growth and yielding substantial tax revenues to all levels of government. Still, the Bush administration was running huge budget deficits from expenditures on the increasingly-expensive wars in Afghanistan and Iraq.
Congress approved funding for the Afghan and Iraqi wars even after the Democratic Party regained majority control in the 2006 elections. The funding also allowed for the start of construction in Baghdad of the world’s largest U.S. embassy, as well as permanent military bases in Iraq.
The housing bubble began to collapse when the Federal Reserve raised interest rates by 425 basis points from June 2003 to June 2006. In January 2006, Ben Bernanke replaced Alan Greenspan as Fed chairman. Greenspan had been chairman for nineteen years during which the largest financial bubbles in world history were created.
This sequence of events led some to contend that the Federal Reserve had both deliberately created the housing bubble, then deliberately destroyed it. Hundreds of millions of people around the world, including U.S. homeowners and foreign investors, ultimately were trapped in the Greenspan/Bernanke pincers.
By 2007, the federal government’s debt was over $9 trillion and reached $10.3 trillion by October 2008. It was now obvious that a serious economic downturn lay ahead. By 2007, signs of a recession loomed, as homeowners who had signed up for “subprime” and ARM mortgages began to default.
By 2008 the number of home foreclosures would exceed four million. The mortgage-based bonds sold through Wall Street brokerage houses to U.S. and foreign investors, began to prove worthless. They had proliferated around the world as virtual time-bombs in investment portfolios.
By August 2008, foreign investors, such as the Bank of China, were becoming increasingly involved in the crisis. Reuters ran a story that Chinese banks planned to stop investing in U.S. markets, which the Chinese government denied, but the threat remained.
If the Chinese and other Asian exporting and petroleum-rich nations pull out, the days of “dollar hegemony,” where the dollar constitutes the world’s reserve currency, providing almost unlimited funding for the U.S. commercial and military empire, will be over.
THE BUSH ADMINISTRATION HITS A WALL
By the first presidential primary elections of 2008 in Iowa and New Hampshire, the campaign to select the next president of the United States was underway. The eight-year George W. Bush presidency would be ending within a year.
In retrospect it can be seen that U.S. military occupation of the Middle East, focusing on Iraq and involving extensive collaboration with Israel, was an extension of the century-long attempt by the Anglo-Americans to control the region’s fossil fuel resources.
But the nation of Iraq and its people had been crushed in the meantime. Even if the U.S. were to withdraw combat forces at some time in the future, the permanent military bases it plans to leave behind will be islands in a sea of hostility. Today even these bases are in jeopardy, as Iraq’s elected government pressures the U.S. to commit to a complete withdrawal by 2011.
Iran has clearly been strengthened by U.S. action to destroy Sunni power in Iraq and has been emboldened by the successes of Hamas in Palestine and Hezbollah in Lebanon in standing up to the Israelis. U.S. intentions to attack Iran have evoked strong opposition among Europeans and can be seen to have enhanced the influence of Russia and China, since Iran is now an observing member of the Shanghai Cooperative Organization.
After initial successes in Afghanistan, U.S. forces have become bogged down in protecting the capital of Kabul, where President Hamid Karzai rules under virtual siege, while the Taliban have come back to contest control of the countryside. The U.S. has resorted to bombing sorties which often kill civilians and has begun to escalate the war by sending raiding parties into neighboring Pakistan.
After the 1991 collapse of the Soviet Union, the U.S., acting through NATO, moved aggressively to extend its influence into the former Soviet republics and surround Russia with nations friendly to the West. The former Soviet Union and Soviet satellite states that joined NATO were Estonia, Latvia, Lithuania, the Czech Republic and Slovakia (formerly part of Czechoslovakia), Bulgaria, and Romania.
The European members of NATO have not yet agreed to extend invitations to the Ukraine and Georgia after those nations expressed interest following establishment of pro-Western governments, though a communiqué after the 2008 NATO summit in Bucharest indicated membership would be forthcoming.
But the NATO façade may have cracked, as shown by a recent trip by German Chancellor Angela Merkel to St. Petersburg for meetings with Russian President Dmitri Medvedev.
According to a report by George Friedman:
“The central question on the table was Germany’s position on NATO expansion, particularly with regard to Ukraine and Georgia. Merkel made it clear at a joint press conference that Germany would oppose NATO membership for both of these countries, and that it would even oppose placing the countries on the path to membership. Since NATO operates on the basis of consensus, any member nation can effectively block any candidate from NATO membership. The fact that Merkel and Germany have chosen this path is of great significance. Merkel acted in full knowledge of the U.S. view on the matter and is prepared to resist any American pressure that might follow.” (George Friedman, “The Russian Resurgence,” www.Stratfor.com September 18, 2008)
Also by 2008 the U.S. was losing influence with the former Soviet republics of Central Asia—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—which had joined with Russia and China in the SCO. In central and south Asia, as well as Africa, nations have been unwilling to act as hosts for new U.S. military bases.
The U.S. had been losing ground in Central Asia and elsewhere even before Georgia invaded its former province of South Ossetia on August 8, 2008. The invasion of South Ossetia by Georgia’s forces, armed and trained by the U.S. and Israel, was crushed so decisively by the Russians as to be a major embarrassment to the Bush administration.
Announcements by Vladimir Putin, now the Russian prime minister, that Russia is opposed to a unipolar world were reminiscent of the 1970s, when President Richard Nixon and Russian General Secretary Leonid Brehznev met as equals to forge the policy of détente. Putin created a sensation on February 10, 2007, at the 43rd Munich Conference on Security Policy, when he said:
“What is a uni-polar world? No matter how we beautify this term, it means one single center of power, one single center of force, and one single master.”
Speaking of the U.S., Putin said:
“The United States has overstepped its borders in all spheres—economic, political and humanitarian—and has imposed itself on other states.…Local and regional wars did not get fewer, the number of people who died did not get less but increased. We see no kind of restraint – a hyper-inflated use of force.…[The U.S.] has gone from one conflict to another without achieving a fully-fledged solution to any of them.”
Putin clearly has rejected the one-world aspirations of the Western financial elite which acts through U.S. military power. After the Georgian crisis, Dmitry Medvedev, Putin’s successor as president, reiterated:
“The world must be multipolar. Single polarity is unacceptable. Russia cannot accept a world order in which any decisions will be made by a sole nation, even such a serious one as the United States. Such a world order will be unstable and fraught with conflicts.”
Where did the European Union (EU) fit in after the Georgia debacle? Clearly the Europeans were not passive spectators to a U.S.-Russian standoff. European leaders moved quickly to negotiate a cease-fire in Georgia followed by withdrawal of Russian troops.
The more the EU acts as a bloc, the more it seems that a new nationalist entity has come into existence, complete with its own Euro-based currency. The European population wants peace, prosperity, justice, and to be left alone. They particularly do not want to be dragged into America’s wars. The EU has also taken the lead economically with a 2007 GDP of $16.8 trillion vs. $13.8 for the U.S. (IMF figures)
In the Middle East times are changing too. Some Israeli politicians say that Iran, with its supposed nuclear ambitions, poses an “existential threat” to the nation. But there are reports that the U.S. has told Israel they will not be permitted to attack Iran on their own.
As stated previously, the financial crisis deepened in the late summer of 2008 when China and the other nations of the world that had been floating the U.S. fiscal and trade deficits by their purchase of public and private securities became alarmed. This was in reaction to Wall Street’s issuance of the huge amount of “toxic” debt from mortgage-backed securities that were now collapsing in value as the housing bubble imploded.
The start of the recession and the decline of purchasing power by consumers who can no longer borrow quantities of money also means that the U.S. will cease as the customer of last resort whose purchases conveniently float the world economy. The Japanese, sitting on billions of U.S. dollars in their bank accounts, are reportedly furious that U.S. consumers might no longer support the abundant lifestyle of the world’s richest nation.
The dollar is so shaky that some nations are reducing their dollar reserves and turning to other currencies. Talk has been rampant about a worldwide shift to a multi-currency regime, possibly including the Euro, the Yuan, the Yen, and even the Ruble. In March 2007 the Governor of China’s Central Bank Zhou Xiaochuan announced:
“China will diversify its $1 trillion foreign exchange reserves, the largest in the world, across different currencies and investment instruments, including in emerging markets.”
Meanwhile, the Bush administration, led by Secretary of the Treasury Henry M. Paulson, working in league with Federal Reserve Chairman Ben Bernanke, has begun to introduce gigantic amounts of publicly-backed credit to rescue the exploding financial system.
As recently as 2006, the U.S. financial industry earned over $500 billion in profits—an astronomical sum. Some hedge fund managers were earning $1 billion a year. Now Wall Street is a disaster scene, with financial firms losing over 200,000 jobs in a year and major investment banks going bankrupt.
Also, the two quasi-governmental mortgage guarantee agencies, Fannie Mae and Freddie Mac, have failed. Despite their lavishing $175 million in the last decade on buying influence from Congress, the government has fired their executives and is taking the two agencies over in a conservatorship. The government also took over insurance giant AIG.
When, on September 23, 2008, Henry Paulson asked for $700 billion dollars to purchase bad debt from U.S. and foreign banks without any oversight or guarantee of success, Congress revolted, with the House of Representatives rejecting the proposal in an initial vote. They did so because their constituents were enraged with the terms proposed by the Bush administration for a gigantic giveaway of taxpayers’ money.
U.S. taxpayers could now be finding themselves on the hook for possibly trillions of dollars of debt liabilities due to Wall Street mismanagement and fraud. Both the Securities and Exchange Commission and the Federal Bureau of Investigation have begun belated criminal investigations. Americans on “Main Street” and their representatives in Congress remain horrified.
Some say the capitalist era is over. The financiers and stock brokers have run rampant in the 2000s under President George W. Bush. They’ve been called, only half-jokingly, “The Masters of the Universe.”
But their excesses have been encouraged by the Bush administration, the Federal Reserve, and the government’s regulatory agencies, which have combined to facilitate an explosion of leveraged speculation in the housing, hedge, equity, commodity, and derivative markets. More shocks undoubtedly lie ahead.
By September 2008, as the bubbles were starting to blow up, the greatest financial crisis since the Great Depression was underway. Despite initial opposition, Congress caved in to pressure from Bush and the bank lobbyists and approved a revised version of Paulson’s plan.
The Treasury Department has started to float new bond issues to raise money to buy the bad mortgage debt, not only from U.S. banks but from foreign investors as well. Meanwhile the stock market is continuing to decline and by October 10 had lost almost forty percent of its value in a year. Over $8 trillion in wealth had vanished from U.S. markets, including the retirement savings and dividend income of tens of millions of people. On October 24, the Dow Jones closed at 8,378.95 vs. 14,198.1 on October 11, 2007.
At the same time, rising prices of oil, food, and other commodities have begun to produce another era of global stagflation, similar to the 1970s, though oil prices have fallen recently. Still, the U.S. financial collapse is resulting in the onset of a worldwide recession that most commentators, including economists at the IMF, said could only get worse—possibly much worse.
THE 2008 ELECTION
When the financial crisis struck during the week of September 22, it was only six weeks before the presidential election. Democrat Barack Obama shot up in the polls, because voters perceived him as more likely than Republican John McCain to deal effectively with the situation.
Obama, with a Kenyan father and a white American mother, was the first African-American to run for the presidency of the U.S. on a major party ticket. Now Obama was the beneficiary of the bad economic news since McCain had consistently allied himself during his long Senate career with the financial deregulation dating from the Reagan years that was now proving disastrous.
McCain had just finished saying in a speech, “The fundamentals of our economy are strong,” but on Wednesday, September 24, he changed his tune. Now, he said, he was suspending his campaign and would return to Washington, D.C., to help solve the crisis. The Democrats howled with derision at this seeming act of political hypocrisy which showed, they said, how desperate McCain had become to maintain credibility.
But neither had been convincing as signs of an economic recession began to accelerate. Obama’s five million new jobs, for instance, were an intention, not a plan. But they were obviously needed. The financial emergency hit after job losses of 60,000 for August were announced.
Washington Post columnist David Broder accused the pair of “running from reality.” Broder added:
“The frustration that is growing stems from their mutual reluctance to talk candidly about the situation one of them will inherit. If either of them has a clue what to do to help stabilize this tottering economy, he is keeping it to himself.”
What was most clear about events was that the deregulation of the financial system that began in the 1980s now could be seen to have wrecked the U.S. economy. But neither Obama nor McCain proposed regulatory changes or sought in any way to challenge the machinations of the financial titans.
THE CANDIDATES TAKE NOTICE OF THE DEEPENING CRISIS
Housing and home ownership are among the key issues. During the housing bubble, the prices of homes inflated to two or three times their previous value. Now these prices have been collapsing, though homeowners still have to make payments in excess of what the homes were now worth. Critics have pointed out that the Wall Street bailout plan both Obama and McCain voted for was intended to keep home prices high, even if families have trouble making their mortgage payments and continue to lose their homes to foreclosure.
And mortgage payments are going up due to rising interest costs and the resetting of adjustable rate mortgages. On October 8, with the stock market still in free fall, the Federal Reserve cut interest rates for the banking system, but the rise in mortgage interest rates for consumers continued. It will be difficult for the Federal Reserve to cut rates further because this weakens the dollar and makes investments in the U.S. economy less attractive for China, Japan, and other foreign dollar holders.
On the evening of Monday, October 13, Obama tried to seize the initiative through a major address in Toledo, Ohio, on a new economic recovery plan which included the following provisions:
* A tax credit of $3,000 per job for companies adding jobs in the U.S.
* Elimination of capital gains taxes on investments in small and start-up businesses.
* $25 billion of federal money for infrastructure projects.
* Tax cuts for workers, middle-class employees, and senior citizens.
* Extension of unemployment benefits.
* Penalty-free hardship withdrawals from retirement accounts.
* Allowing bankruptcy judges to modify mortgage terms for distressed consumers
* A ninety-day foreclosure moratorium for financial institutions that participated in the congressional bailout plan.
But there was a glitch. Despite the variety of provisions and the obvious voter appeal, the plan would only provide a $50 billion stimulus to the economy, less than $175 per capita. The amount would be dwarfed by the estimated total of $1.5 trillion the federal government had committed to between March 16 and October 3 to rescue the financial system.
The rescue included financial institution bailouts and takeovers, costs due to bank failures, new mortgage insurance, and tax breaks added to the bailout bill. This largesse would have to be paid for by yet more government borrowing, with an unprecedented $1 trillion deficit looming for fiscal year 2009.
The day after Obama put forth his plan, McCain said he would offer $52 billion in tax cuts but no stimulus spending. He had campaigned against congressional “earmarks,” which were a type of budget appropriation for infrastructure projects proposed by representatives for their home districts. McCain viewed federal infrastructure spending as “pork,” making it a taboo which he could not break at this late stage of the game.
The day McCain made his proposal, the government announced that $250 billion of the Wall Street bailout would be used for the Department of the Treasury to buy shares in the nation’s largest banks. This followed similar action announced for British banks by Prime Minister Gordon Brown. The measure would restore some of the bank capitalization lost through loan defaults. U.S. banks would now be partially nationalized.
In spite of all this, the Federal Reserve, the IMF, and every commentator writing on the subject was still predicting a long and deep recession for both the U.S. and world economies. Around the world stock markets continued to fall.
Meanwhile, Obama had a credibility problem with regard to the war in Iraq.
In running after having served in the U.S. Senate for only four years, Obama had come out of nowhere to capture the imagination of younger and highly-educated voters sick of Bush’s wars. But far from being the peace candidate he seemed to be early in his election bid, now when he said he had opposed the Iraq War from the start, he clarified his position to mean that he only opposed it because the U.S. should have been focusing its military efforts more on Afghanistan and Pakistan.
He talked about “taking out Osama bin Laden,” referring to the 9/11 attacks seven years ago. But bin Laden hadn’t reliably been seen or heard from for years, and some doubt he is even still alive.
Obama also said, in accepting the Democratic Party nomination for president in Denver on August 28, that he would “truly stand up for Georgia” and “curb Russian aggression.” Later Obama called Russia’s actions “evil.” Biden referred in his acceptance speech to “Russia’s challenge to the free and democratic country of Georgia.” Obviously, these aggressive positions, based on falsehoods, could trigger a U.S.-Russian confrontation if pushed to their logical extremes.
McCain has been serving in Washington, D.C., in the House or the Senate, since 1983. He is a former Vietnam prisoner of war and the son and grandson of Navy admirals. He graduated from the U.S. Naval Academy in 1958 with a dismal ranking of 894 out of 899.
McCain is the favored candidate of the military-industrial complex and, with Alaska governor Sarah Palin as nominee for vice-president, the religious right-wing. He is also the one who would likely ensure continued record-setting oil company profits.
McCain had tried to appeal to the Christian fundamentalist constituency by picking Sarah Palin as his vice-presidential running mate, though no candidate for that office ever had less experience at the national level. She said that the Iraq War was “God’s task,” while British Petroleum reportedly was a sponsor for her inauguration. McCain is the oldest presidential candidate in history and not of the best health. People have been looking at Sarah Palin in light of the terrifying prospects that such a seemingly clueless person could occupy the White House if McCain died in office.
But the next president could be faced with momentous decisions. Events since the late 1970s showed how much the philosophy in U.S. ruling circles had moved away from President Richard Nixon’s concept of a multilateral world based on a balance of power to one of world conquest by an international order headed by the global financiers and enforced by a militant U.S. government.
Therefore it is difficult for many observers to be hopeful about seeing the U.S. take its place among a peaceful family of nations. Both candidates promised “change.” But would they change anything that really made a difference? Or would they just follow orders from the ruling U.S. elites?
As the campaign entered its final month, it was Obama’s to lose. Still, many people believed that the real reason George W. Bush had won the 2000 and 2004 elections was due to campaign fraud in Florida and Ohio respectively and feared that something similar could happen in 2008.
Would the Republicans steal what was arguably one of the most important presidential elections in U.S. history? The New York Times reported on October 9:
“Tens of thousands of eligible voters in at least six swing states have been removed from the rolls or have been blocked from registering in ways that appear to violate federal law.”
The Obama campaign was even calling for appointment of a federal special prosecutor to investigate allegations of illegalities. As Obama continued to rise in the polls and McCain fell further behind, some said that if McCain did win the election, it could be done only through dishonest means.
EUROPE WEIGHS IN
But no matter whether Obama or McCain is elected, the U.S. is part of a larger world where its credibility has never been lower and where economic weakness has begun to remove its power of choice.
It has already been noted that it was foreign creditors, especially China, that appeared to be threatening to pull the plug on the U.S. government’s incessant borrowing which may have been the trigger that forced Henry Paulson to admit a crisis had hit by going to Congress for the financial rescue package.
Then with the election only two weeks away, it became clear that Europe had something different in mind than letting the U.S. return to its old ways of what might be called “Wild West” economics. After all, for several decades, U.S. politicians and businessmen had run all over the globe grabbing whatever they desired in order to support the world’s most wasteful and resource-intensive lifestyle.
At the same time as the U.S. was trying to shore up its failing financial industry, the nations of the EU have been taking actions to protect themselves. Except that the EU was focusing more on assuring solvency by increasing government control rather than the mindless “free-market” cash bailouts that Paulson and Bernanke were engineering. When in mid-October the Europeans weighed in, the U.S. stock market staged a single-day rally, with a gain of over 900 points in the Dow-Jones Industrial Average.
Over the past few years the sense has been building that the Europeans were becoming alarmed at the threat which U.S. misrule was posing to the world on a number of fronts, including 1) the breakdown of the world’s largest economy triggered by gross irresponsibility on the part of both the U.S. public and private sectors; 2) the overly-aggressive and failing U.S. military posture in the Middle East; and 3) U.S. refusal to address overriding international issues like resource conservation and global warming.
On October 18, the Canadian Globe and Mail reported on a recent meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel. The report said, “Nothing would be truly fixed, they believed, until there was a new world financial system in place, a new economic watchdog supervising the world’s economies.”
The day before the Globe and Mail report, an article by British Prime Minister Gordon Brown appeared in the Washington Post, where he wrote:
“This is a defining moment for the world economy. We are living through the first financial crisis of this new global age. And the decisions we make will affect us over not just the next few weeks but for years to come. The global problems we face require global solutions.”
Brown added that, “The next stage is to rebuild our fractured international financial system” and mentioned that the purpose was to “root out the irresponsible and often undisclosed lending at the heart of our problems.”
Perhaps what Brown has in mind was to act on behalf of Europe in rescuing the Western financial system from the excesses of those in the U.S. who have wrecked it. Brown concluded diplomatically:
“There are no Britain-only or Europe-only or America-only solutions to today’s problems. We are all in this together, and we can only resolve this crisis together. Over the past week, we have shown that with political will it is possible to agree on a global multibillion-dollar package to recapitalize our banks across many continents. In the next few weeks, we need to show the same resolve and spirit of cooperation to create the rules for our new global economy. If we do this, 2008 will be remembered not just as a year of financial crisis but as the year we started to build the world anew.”
The Globe and Mail article provided additional detail on the topics the summit would cover:
“The document that Mr. Brown first made public on Wednesday morning …proposes a set of organizations — a ‘new international financial architecture for the global age’— that will monitor risks in the financial system and provide an early-warning system; determine global standards of regulation; supervise international corporations in their cross-border activities, protect markets from excessive activities of speculators; stamp out major conflicts of interest and set standards for pay and bonuses; internationalize accounting standards, and provide transparency in complex financial transactions.”
Over the weekend, Sarkozy and European Commission President José Manuel Barroso met with President Bush at the presidential Camp David retreat in Maryland where they announced “a series of summits on addressing the challenges facing the global economy,” starting with one in the United States “soon after the U.S. elections.”
But Sarkozy sounded much more aggressive than Bush or other U.S. officials had been in curbing reckless “free-market” abuses. He told the press:
“The president of the United States is right in saying that protectionism and closing one’s borders is a catastrophe. He is right to say that it would be wrong, catastrophic, to challenge the foundations of market economics. But we cannot continue along the same lines because the same problems will trigger the same disasters.”
Sarkozy mentioned several areas where he might want to negotiate new regulations exceeding what the U.S. and Britain were looking for, including more stringent regulation of international banks, hedge funds, and credit-rating companies. According to press reports, he also said that world leaders should reconsider the rules governing offshore tax havens such as the Cayman Islands.
Sarkozy has also been reported as saying, “We want a new world to come out of this. We want to set up the basis for a capitalism of entrepreneurs, not speculators.” Another topic Sarkozy and other European leaders have mentioned is restoring the system of fixed currency exchange rates that the U.S. abandoned in 1972, an action which introduced an era of worldwide currency anarchy. He said that fixed, but flexible, exchange rates “should definitely be on the table.”(Bloomberg.com, October 6, 2008)
Regarding any potential conflict with the U.S. over the upcoming summits, Sarkozy said after a meeting in Europe: “Europe wants it. Europe demands it. Europe will get it.” (Christian Science Monitor, October 20, 2008)
Finally, on October 23, the White House announced that President Bush would host the first summit on November 15 in Washington, D.C. The Washington Post reported that:
“Sarkozy, British Prime Minister Gordon Brown, and others have signaled a desired to go much further in regulating markets than Bush seems inclined to do. Brown said yesterday that he wants greater cross-border oversight of banks and other financial firms, while Sarkozy called for much stricter government supervision of financial markets.”
By now attendance had been expanded to include the entire G-20 which represents two-thirds of the world’s population. The G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union.
Finally, at a meeting hosted by the Chinese on October 25 in Shanghai, Chinese Prime Minister Wen Jiabao confirmed the need for far-reaching measures. With Japanese Prime Minister Taro Aso, German Chancellor Merkel and French President Sarkozy in attendance, the attendees issued a statement which said they recognized “the need to improve the supervision and regulation of all financial actors, in particular their accountability” and agreed “to undertake effective and comprehensive reform of the international monetary and financial systems.”
Prior to this meeting, said Reuters:
“The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.”
The era of American unilateralism is clearly on the verge of ending. Whether it’s Obama or McCain who is elected president on November 4, that person will sit in attendance at the planned summits with the rest of the world presenting its case for change.
WHAT SHOULD THE NEXT PRESIDENT DO TO FACE THE CRISIS?
Senior White House correspondent Helen Thomas said of Bush, “He is the worst president in all of American history.” The public shares Thomas’s view. By mid-October 2008, ninety percent of those polled said the nation was headed in the wrong direction.
Former President Jimmy Carter said something similar in the area of foreign policy: “I think, as far as the adverse impact on the nation around the world, this administration has been the worst in history.”
One thing is certain: the legacy left by President George W. Bush is indeed a kind of Armageddon. The challenges that will face the next U.S. president are almost beyond comprehension. They include war vs. peace and the ability of the world economy to function.
The organization that should be the most concerned is the U.N., but where is the U.N. today? Obviously it is nearly dead as a positive and active force in the world. In a farewell address preceding his 2006 retirement as secretary-general, Kofi Annan discussed three major problems of “an unjust world economy, world disorder, and widespread contempt for human rights and the rule of law,” which “have not been resolved, but have sharpened” during his service.
This disintegration has taken place during the George W. Bush presidency. In a December 11 speech, Annan asked for the U.S. to return to President Harry Truman’s multilateralist foreign policy and to follow Truman’s belief that “the responsibility of the great states is to serve and not dominate the peoples of the world.”
But can such a momentous change take place? NATO, for instance, does not appear to be expecting a benign outcome to the world crisis. Author Michael Collon reported in an article on “What Will the U.S. Foreign Policy be Tomorrow?”:
“In January 2008, five former NATO generals presented a preparatory document for the NATO summit meeting at Bucharest. Their proposals reflect a terrifying possibility. And what gives weight to their document is that, up until recently, all of them held very high positions. General John Shalikashvili was U.S. Chief of Staff and Commander in Chief of NATO in Europe, General Klaus Naumann ran the German army and was president of the military committee of NATO in Europe, General Henk van den Breemen was Dutch Chief of Staff and Admiral Jacques Lanxade held the same post in France, while Lord Inge ran the General Staff and was also Chief of the Defence Staff of Great Britain.” (Information Clearing House, October 12, 2008)
Collon described the document in a section entitled, “Five NATO Generals Prepare a World Government.” The document stated, “What the Western allies expect is the pro-active defense of their societies and their way of life maintained over the long term.” It continued, “The objectives of our strategy are to preserve the peace, our values, economic liberalism, and stability.”
“Economic liberalism” means market-oriented global finance capitalism under the control of the Western banking system.
The document also identified enemies, the chief one being China:
“China is in a situation to wreak great harm on the US and the world economies, based on its enormous reserves in dollars….China is in a position to use finance to impose itself on Africa and acquire the capacity to utilize it on a much greater scale—if it so decides.”
This statement by the generals is mind-boggling. Hasn’t it been U.S. government policies that resulted in these dollars being paid to China? And isn’t the West talking out of both sides of its mouth in planning a world economic summit that includes China, while contemplating war against that nation?
Indeed, the rise and fall of the U.S. bubble economy cannot be understood unless the role of China is taken into account. This role is increasingly problematic in light of statements such as one made recently by Shi Jianxun, a professor at Shanghai’s Tongji University:
“The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar’s hegemony to plunder the world’s wealth.” (“U.S. Has Plundered World Wealth With Dollar,” Reuters, October 24, 2008)
Whatever agreements U.S. bankers and politicians may once have made with China for them to take over U.S. manufacturing while the nation lived off financial profits have grievously backfired. Solving this conflict with China peacefully may be the next president’s greatest challenge. But decisions to the contrary may already have been made, with the president’s job being merely to carry them out.
ECONOMICS OF THE SPIRIT
Maybe a New World Order really is needed. If so, shouldn’t it be one with a genuine spiritual basis leading to economic justice, not just a modification of the usury-based system we have today? Such a system based on economic justice was affirmed in a message to the author by an Australian author, Omna Last, who wrote:
“Earth is a temple. The money-changers have taken over the temple….It is time to remove the money-changers from their positions as priests of the new religion of money….Governments all over the world should be run by people in tune with their divine selves – their conscience, in tune with God, not in love with money and its power, but in love with the moral laws of the Universe. ” (www.omnadeLight.com)
Those with eyes to see knew the present crisis was coming long ago. That vision now has spread to more people. What is increasingly clear is that positive change, as opposed to the change that is just a drift to disaster, will only happen when people around the world who love freedom demand it, work for it, and sacrifice for it. Will the next president of the United States facilitate such change or stand in its way?
Copyright 2008 by Richard C. Cook
Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His new book, We Hold These Truths: The Hope of Monetary Reform, can now be ordered for $19.95 from www.tendrilpress.com. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.“His website is www.richardccook.com. Comments or requests to be added to his mailing list or to purchase his special report on the 2008 election may be sent to EconomicSanity@gmail.com.