Category Archives: Economy

09.14.23
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White supremacy, Brown masks: the meaning of the Sunak government

I am at the barber’s, and a copy of Paris-Match is offered to me. On the cover, a young Negro in a French uniform is saluting, with his eyes uplifted, probably fixed on a fold of the tricolour. All this is the meaning of the picture. But whether naively or not, I see very well what it signifies to me: that France is a great Empire, that all her sons, without any colour discrimination, faithfully serve under the flag, and that there is no better answer to the detractors of an alleged colonialism than the zeal shown by this Negro in serving his so-called oppressors

  • Roland Barthes, 1957 

Thus opened Barthes’ commentary on how signs are worked into myths in the contemporary world. Of course, if Paris-Match had wanted to use a real example of a “Negro in a French uniform,” the obvious choice would have been Touissant L’Ourvertoure, that most loyal servant of the French Republic and leader of French Haiti during the most tumultuous years of the Revolution. But we all know how that loyalty was repaid by the French – Toussaint was tricked, kidnapped and left to starve to death in a Parisian dungeon. Better to invent an example.  

Rishi Sunak is no Touissant. L’Ouvertoure made it his life’s mission to overthrow slavery and never allow it’s restoration; Sunak’s is to ensure that the global system of neocolonial wealth extraction – encompassing a greater degree of enslavement than at the height of the Maafa – continues unabated. This requires an undying attentiveness and loyalty, above all, to counter-revolution. 

Core to that strategy, since the days of Disraeli, has been to allow a growing proportion of the domestic working class a share of the fruits of imperialism, thus creating in them a direct interest in the maintenance of the system. Hand in hand with these material benefits has been the psychological kick of being constantly flattered about being part of a master race or superior civilisation. This was what WEB DuBois termed the “wages of whiteness,” although in Britain it was always membership of the British empire and its civilising mission that was primary more than mere whiteness alone. Boris Johnson’s particular style of ‘populism’ understood these twin pillars of counter-revolution – the material and the psychological – very well. On the material level, he favoured a certain leftish economic rhetoric, embodied by the commitment to ‘levelling up’ (to be achieved by a promised, albeit never materialised, massive state infrastructure investment in the deindustrialised North) and signalling an end to a decade of austerity. This involved removing (briefly) the public sector pay freeze, making more nurses and more hospitals a major plank of his election campaign, and using £70 billion of public funds to pay wages during lockdown. 

Running alongside this ‘big state’ economic platform, however, was a crude nationalism punctuated with explicit dogwhistles to the far right. Johnson’s three-pronged approach combined braindead feelgood claims of British greatness with the frequent mocking of persecuted minority groups, all conducted against a backdrop of ceaseless media-grabbing attacks on migrants and foreign entities in general (the EU chief amongst them). In other words: mock the minorities, fuck the migrants, up the Brits. This was, or at least claimed to be, a welfare state of sorts, but only for the in-group, the volk (as defined by birthright or perhaps, where unavoidable, economic necessity). Let’s not get hysterical and call it fascism. But it was clearly in the fascist tradition. 

To fend off such claims, Johnson recruited a steady stream of Black and Brown faces to front the persecution. Priti Patel would head up the war on migrants, Sajid Javid the hostile environment in the NHS, Kemi Badenoch the culture war against those who would dare criticise the empire, and Suella Braverman the rooting out of judicial opposition. Ever since NATO recruited Barack Obama to launch its war on Africa in 2011, Blackfacing racism has become the standard practice of imperialism. But it has a long pedigree: a century and a half before this, Sunak’s moral forbears were making themselves available as the native face of British oppression in India. 

But where does Sunak himself fit into this? He was Chancellor, much more obviously involved in the ‘left plank’ of the populist agenda than the right; come the Conservative leadership contest, he had a lot of ground to make up. Already racially suspect for the white-and-proud Conservative membership, he had to prove himself twice over – one, that his loyalties were to his nation of residence and citizenship, not his familial homeland, and two, that he was willing to bash the (racially) undeserving poor as well as splash the cash. He did his best on the campaign trail: railing against ‘woke nonsense’ and the Equality Act, threatening to criminalise criticism of Britain, and promising to prioritise a crack down on the desperate families drowning in the English Channel should he be elected. But it didn’t work; the white conspiracist gerontocracy that is the UK Tory party rejected him in favour of the more reliably unhinged Liz Truss by a comfortable margin. But now, barely two months later, she is out and he is in – and the ‘left plank’ of Johnsonian populism is being readied for the bonfire. The markets – that is, the billionaire investor class that Sunak is very nearly a member of himself – have dictated that it is time to balance the books, and new Chancellor Jeremy Hunt has promised a new round of crippling austerity as a blood sacrifice. The material wages of whiteness – and of imperial citizenship – are set to become very threadbare indeed. 

The problem is, it is pretty much universally acknowledged that it was precisely this populist combination – of leftish economics and rightwing culture wars – which delivered the so-called ‘red wall’ – and thus the election – to the Tories in 2019. These former Labour seats, even more than the rest of England, are nationalist and anti-migration but also supportive of public services. With no good news on the latter, Sunak’s government will be increasingly seeking to double down on the nationalist side of the offer to maintain their electorability. 

This explains the prominent positions given to leading culture warriors in Sunak’s cabinet. Sunak was willing to take the flak for awarding the Home Office portfolio to Suella Braverman less than a week after she had been forced to resign from the same position for repeatedly breaking the ministerial code – because he knew he needed someone like her to shore up his migrant-bashing credentials. Days later, it emerged that she had broken the law to overrule official advice on migrant accommodation, creating a dangerous level of overcrowding in the Manston refugee holding centre. These types of scandals are not, however, as the bourgeois liberal press believe, electorally damaging. Quite the opposite – they replicate the winning Johnson formula of demonstrating contempt for namby pamby laws that get in the way of delivering on the promise to properly persecute migrants. Johnson’s mistake was merely to believe that the public sympathy he won for breaking laws meant to protect migrants would be extended to cover breaking laws meant to protect white grannies. He learnt the hard way that his mandate, like so much in Britain, was a racialised contract, not a blanket one. 

Likewise, the lies. In the Trump-Johnson era, ‘telling the truth’ no longer means making factually accurate statements, but rather saying things that are gratuitously offensive to vulnerable minorities, regardless of their veracity. In this sense, Braverman is ‘telling the truth’ when she says Britain is facing an “invasion” by “unprecedented” numbers of asylum-seekers arriving in the country. Whilst factually inaccurate, of course – clearly there is no military offensive underway by the desperate and half-drowned washing up on Dover’s beaches, and actual numbers of asylum applications are 40% lower than they were in 2002 – Braverman is nevertheless perpetuating a popular scapegoating of those arriving, and that is what counts. One might wonder whether it would take a violent fascist attack to make the Bravermans of the world question their role in legitimising the demonising tropes of the far right. But such an attack had already occurred just the day before she made her comments, when a fascist threw three petrol bombs into a migrant processing centre in Kent. Whilst even her own immigration minister distanced himself from her comments, Sunak stood proudly by her. With the wave of crushing attacks on working class living standards now brewing, it is only the psychological wages of whiteness – the pride that comes from spitting on the wretched of the earth – that he can now fall back on. 

Nothing illustrates this more clearly than the Conservatives’ grim determination to ensure the spectacle of desperate channel crossings continues. They could, of course, end the situation overnight, by the simple act of setting up an asylum processing centre in France, removing at a stroke the sole purpose of the dangerous crossings. This is what refugee charities have long been pushing for, and was indeed offered by Macron this time last year, only to be rejected out of hand by Johnson. Instead the government is committed to ensuring that the only possible way to apply for asylum in the UK is to risk life and limb on the high seas or in the back of a lorry. 

Keeping immigration alive as an issue is a fundamental electoral strategy for the Conservatives, as immigration is one of the few policy areas in which they are traditionally more trusted than Labour. And it is not necessarily easy to do so, given that the UK is only 18th in Europe in terms of asylum applications per capita. Maintaining a constant spectacle of death and crisis on the South coast is one way in which immigration can be kept at the top of the agenda, giving the Conservatives an opportunity to simultaneously demonstrate their ‘toughness’ and keep attention away from things such as crumbling wages, unaffordable housing and the collapsing NHS. 
In this, they can rely on the collaboration of the mainstream media, who dutifully neglect to mention that the crisis is a deliberately manufactured spectacle caused solely by the refusal to process asylum claims in Calais. In a detailed and sober piece on the BBC news website, for example, entitled, “Why do migrants leave France and try to cross the English channel?,” it is not even mentioned. Clearly, the ruling class commitment to keeping the refugee in the role of the nation’s whipping boy seems set to continue. Whether this can compensate for the ever sharper deterioration in national living conditions forever remains to be seen.

This article was originally published in Counterpunch in November 2022.

08.30.19
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Drug smuggling is HSBC’s raison d’etre

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HSBC Tower in Hong Kong; the cannons are pointed at the Bank of China Tower. 

31st January 2016 

HSBC are in the news for attempting to suppress a report into money laundering. This is no surprise as the company’s entire history, right up to the present day, is one of financing drug cartels.

HSBC are not known for their transparency. Britain’s wealthiest company, with a stock market valuation of $215billion, has enough advertising muscle in the British press to ensure that critical investigative pieces have been spiked in both the Sunday Times and the Daily Telegraph – in the latter case, causing that newspaper’s chief political commentator to resign in protest. Then last year, the bank’s friends in the Swiss government sentenced the whistleblower who exposed the bank’s massive facilitation of tax avoidance to five years in prison, the longest sentence ever demanded by the country’s public ministry for a banking data theft case. And back in 2011 HSBC was revealed to be the UK financial sector’s most enthusiastic user of tax havens, with no less than 556 subsidiary companies based in offshore jurisdictions. Tax havens, as leading expert Nicholas Shaxson notes, “are characterised by secrecy…what they are fundamentally about is escape – escape from the rules, laws, regulations of jurisdictions elsewhere. You move your money offshore and you can then escape the laws that you don’t like”. This is clearly an institution with much to hide.

So it should not have surprised anybody when, earlier this month, it was revealed that HSBC are now seeking to block the publication of a report into HSBC’s compliance with anti-money laundering laws. After all, it was only three years ago that HSBC were hit with a massive $1.9 billion fine for laundering around $1 billion on behalf of some of the world’s most vicious gangsters. According to US assistant attorney general Lanny Breuer, “from 2006 to 2010, the Sinaloa cartel in Mexico, the Norte del Valle cartel in Colombia, and other drug traffickers laundered at least $881 million in illegal narcotics trafficking proceeds through HSBC Bank USA. These traffickers didn’t have to try very hard.” This is putting it mildly; in fact HSBC went to great lengths to facilitate the drug cartels. As Matt Taibbi wrote in his definitive piece on the scandal, HSBC “ran a preposterous offshore operation in Mexico that allowed anyone to walk into any HSBC Mexico branch and open a US-dollar account (HSBC Mexico accounts had to be in pesos) via a so-called ‘Cayman Islands branch’ of HSBC Mexico. The evidence suggests customers barely had to submit a real name and address, much less explain the legitimate origins of their deposits.” The bank did have a system in place to identify ‘suspicious activity’; but it routinely flouted it. As Nafeez Ahmed has written, “By 2010, HSBC had racked up a backlog of 17,000 suspicious activity alerts that it had simply ignored. Yet the bank’s standard response when it received its next government cease-and-desist order was simply to ‘clear’ the alerts, and give assurances that everything was fine. According to former HSBC compliance officer and whistleblower Everett Stern, the bank’s executives were deliberately ignoring and violating anti-money laundering regulations.” Taibbi wrote that “In one four-year period between 2006 and 2009, an astonishing $200 trillion in wire transfers (including from high risk countries like Mexico) went through without any monitoring at all. The bank also failed to do due diligence on the purchase of an incredible $9 billion in physical US dollars from Mexico and played a key role in the so-called Black Market Peso Exchange, which allowed drug cartels in both Mexico and Colombia to convert US dollars from drug sales into pesos to be used back home. Drug agents discovered that dealers in Mexico were building special cash boxes to fit the precise dimensions of HSBC teller windows”. HSBC’s customers – cartels like Colombia’s Norte del Valle and Mexico’s Sinaloa – were at the time involved in mass murder and abuse of the most psychopathic variety, including beheadings and torture videos. The official death toll from these groups in Mexico alone is 83,000 over the past decade. That they have the capacity to carry out violence on such a

massive scale is the result of the massive financial growth of their industry. And that growth was wilfully facilitated by HSBC. 

Given that this has all now been established in court, were the rule of law actually applied, the bank’s Charter would have been revoked, and its directors (including former UK Trade Minister Stephen Green) would now be in jail. The reason this did not happen is that the sheer size of HSBC’s operations make it too strategically important to close down. “Had the US authorities decided to press charges”, explained Assistant Attorney General Lenny Breuer, “HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.” That is to say, HSBC’s wealth and power put it officially above the law. Even its $1.9 billion fine, massive though it might seem, amounted to a mere five weeks profit for the bank.

But all of this is entirely in keeping for a bank whose roots lie precisely in illegality, drug trading and massive violence.

HSBC’s website notes that it was formed in 1865 to “to finance trade between Europe and Asia”, whilst the official 763-page history of the company explains that “the expansion of international trade with China had inevitably led to demand for trade finance and money-changing facilities – demand that the traditional Chinese banks, the quianzhuang, had been unable to meet”, with HSBC kindly stepping in to help. Yet neither source deigns to tell their readers of exactly what this trade consisted. 

The previous century had seen a huge growth in UK imports of tea from China; indeed, these were growing so large that Britain’s silver supplies were draining away to China to pay for them. The problem for Britain was that it had nothing China wanted to buy in return; as Emperor Qian Long explained in a long letter to King George III in 1793, “our Celestial Empire possesses all things in prolific abundance and lacks no product within its own borders. There was therefore no need to import the manufactures of outside barbarians in exchange for our own produce.” But the traders of the British East India Company, which had taken control of Bengal in 1757, came up with an ingenious solution. They would force the dispossessed peasantry of India – starving and desperate following the Company’s destruction of their textile industry through extortionate taxes, plunder and the imposition of ‘free trade’ – onto newly founded opium plantations, and sell this to the Chinese. This was entirely illegal; but that posed no problem for the British, who simply bribed corrupt Chinese officials to turn a blind eye to the trade. By the 1830s the trade had reached 40,000 chests per annum; selling for up to $1000 per chest, the trade became, according to Frederic Wakeman, “the world’s most valuable single commodity trade of the nineteenth century”, and accounted for almost two thirds of British overseas trade with China. But this tidy little scam came under serious threat in 1839. By that time, the trade had grown so large that China’s silver was now draining away to Britain to pay for the drug, and the Emperor decided to launch a crackdown. As the Le Monde Diplomatique recounted recently, “a senior Chinese government official, Lin zexu, known for his competence and moral standing, issued a warrant for [British opium trader Thomas] Dent’s arrest in an attempt to close his warehouses” and eventually forced the British superintendent of trade to surrender 10,000 chests, which were then destroyed. China’s flagrant attempt to protect its citizens and enforce its own laws was deemed an affront too far for the British, who responded by sending gunboats to the coast of China, and opening fire. Town after town was destroyed by cannonfire, and then

looted by British troops; indeed, according to historian John Newsinger, “it was during this war that the Hindi word ‘lut’ entered the English language as the word ‘loot’”. In one town alone, Tin-hai, over 2000 Chinese were killed, with the India Gazette reporting that “a more complete pillage could not be conceived…the plunder only ceased when there was nothing to take or destroy”. This destruction continued for three years, until the Chinese agreed to the British terms: handing over Hong Kong to the British, opening more Chinese ports to British trade, paying the full costs of their own bombardment, and fully compensating the opium traders for the loss of their property.

A second war followed, lasting from 1856 to 1860. This one was even more destructive, with British warships advancing up the Peiho river to Beijing itself, eventually reaching the Emperor’s majestic Summer Palace. Captain Charles Gordon explained that his troops, “after pillaging it burned the whole place, destroying in a vandal manner most valuable property…everybody was wild for plunder.” One of the items looted was the Emperor’s pet Pekinese dog, taken as a present for Queen Victoria. She called it Looty.

This time, the Chinese were forced to legalise the opium trade. Over the decades that followed, the trade would reach dizzying heights, with British opium exports climbing to 60,000 chests per year by the 1860s, and 100,000 in the 1880s, making it, according to the Cambridge History of China, “the most long continued and systematic crime of modern times”, with millions of Chinese addicts paying the price.

This was the trade which HSBC were created to facilitate. Thomas Dent – the opium trader whose arrest hepped trigger the first of the ‘opium wars’ – was one of its founders. Another was Thomas Sutherland, the Hong Kong superintendent of British shipping company P and O and chairman of Hong Kong and Whampoa dock; opium accounted for 70% of maritime freight from India to China at the time.

As the British research group Corporate Watch have shown, “After the second round of wars the Chinese government could only pay off its massive war fines by turning to such merchants as the Hong King and Shanghai Bank. According to one historian, ‘They…had the effect of placing the revenues of China almost totally in foreign control.’” In other words, then as now, the sheer overwhelming dominance of the bank and its backers created an economic dependency on it which effectively put it above the law.

The combined impact of Chinese government’s dependency and the growing opium trade created profits which catapulted HSBC to the position of most profitable British bank (either overseas or domestic) within 25 years of its foundation. It would stay at or near this position right up to the present day.

Following legalization, Chinese opium production took off, eventually eclipsing even British imports, which ended in 1917. But by this time, HSBC was fully embedded in the Chinese economy, able to position itself as chief financier of the new Chinese entrepeneurs. When this production itself was wiped out by the victorious Communist Party in 1949, production shifted to South Asia (with help from the CIA, according to Peter Dale Scott). HSBC followed. According to Richard Roberts and David Kynaston in their official history of HSBC, The Lion Wakes: “In search of new business, the bank expanded operations elsewhere in Asia in the 1950s and 1960s. In particular, it extended its branch network in Singapore and Malaysia, and for the first time opened branches in Borneo.”

Today, drug profits form a major part of the entire global financial system. According to a 2005 UN report, the illegal drugs trade was worth £177 billion per year, equating to a staggering 8-9 % of total world trade; the latest UN figure is £320 billion per year. Of this, Alain Labrousse of Geopolitical Drug Dispatch, estimates that around 80% of the profits end up “in the banks of the wealthy countries.” Indeed, so dependent has the financial system become on the illicit trade that in 2009, the UN drugs tsar testified that it was

only laundered drug money that kept the global economy from collapsing during the crisis of 2007-8.

Little wonder, then, that wherever you look – from Afghanistan, to Kosovo, to Libya, to Mexico to Colombia, and even ‘at home’ – the policies of the world’s leading financial centres serve to boost the production, distribution and profitability of the drugs trade. And little wonder that HSBC are still keeping their ‘money laundering checks’ to themselves.

 

This article was originally published by RT. 

08.17.18
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Trump’s delusional Iran oil gambit is decades too late

Trump is using everything he’s got to wage economic war on Iran. His problem is that ‘everything he’s got’ is not nearly enough, as the virtual monopoly power once wielded by the US has long since evaporated.

Last week, a senior State Department official announced the US’ intention to cut Iranian oil exports “to zero” by November 4th this year, by threatening to impose sanctions on any company still trading beyond that date. Brian Hook, director of policy planning at the State Department, told reporters on July 2nd that “Our goal is to increase pressure on the Iranian regime by reducing to zero its revenue on crude oil sales”.

Hitherto, experts had predicted US sanctions would see a reduction of around 500,000 barrels per day (bpd) by the end of the year – barely one fifth of the country’s current export of 2.4 million bpd. Even the sanctions that preceded the 2015 nuclear deal – which, unlike today’s unilateral effort, were supported by a broad alliance of world powers, including Russia and China – only succeeded in removing half Iran’s oil (1.2m bdp) from the market.

Hook reassured the world that “We are confident there is sufficient global spare oil capacity”, claiming Saudi Arabia alone could produce an additional 2 million bpd. Saudi Arabia and Russia have already agreed to increase production by 1 million bpd reversing the production quotas imposed in the wake of the oil price slump in 2016.

This determination to destroy Iran by any means necessary has, of course, been the Trump administration’s signature foreign policy since day one, with almost every member of his team harbouring a long-held and well documented vendetta against the Islamic Republic. What is new with Trump, however, is not this determination as such – let’s not forget that Iran has been on the official Pentagon hitlist since at least 2001 – as the means used to pursue it. As I argued in 2014, the nuclear deal was not, on the part of the west, a genuine rapprochement so much as a long term programme of western infiltration, based on the ‘Libya model’, aimed at building a pro-imperialist fifth column within the Iranian state in order to prepare the ground for ‘regime change’ in the future. The Trump team, of course, has no patience for the long game, and want to simply cut to the chase. The reason for this obsession with destroying Iran – shared by all factions of the western ruling class, despite their differences over means – is obvious: Iran’s very existence as an independent state threatens imperial control of the region – which in turns underpins both US military power and the global role of the dollar. And as South-South cooperation continues to develop, this threat grows every day, whilst the means to diminish it are reduced by the same measure.

At the same time, the US military encirclement of China – begun in earnest as Obama’s ‘pivot to Asia’, but, like so much else, undergoing major escalation under Trump – is intimately linked to a policy of cutting off China from its suppliers. In this sense, a policy of ‘isolating’ of Iran is aimed at isolating China also, as China is the largest market for Iranian crude.

Trump’s policy, however, is likely to get few buyers. Pepe Escobar has explained the likely response to Trump’s plans from each of Iran’s top customers: “India will buy Iranian oil with rupees. China also will be totally impervious to the Trump administration’s command. Sinopec, for instance, badly needs Iranian oil for new refineries in assorted Chinese provinces, and won’t stop buying. Turkey’s Economy Minister Nihat Zeybekci has been blunt: “The decisions taken by the United States on this issue are not binding for us.” He added that: “We recognize no other [country’s] interests other than our own.” Iran is Turkey’s number-one oil supplier, accounting for almost 50% of total imports. Russia won’t back down from its intention to invest $50 billion in Iran’s energy infrastructure.. And Iraq won’t abandon strategic energy cooperation with Iran. Supply chains rule; Baghdad sends oil from Kirkuk to a refinery in Kermanshah in Iran, and gets refined Iranian oil for southern Iraq.”

With European companies likely to be more nervous about insubordination to US diktat, this merely leaves more tantalising investments open to Russian and Chinese companies.  As Philip K. Verleger noted, “It’s a huge opportunity for China and Russia to cement relationships with Iran”.

At the same time, all this activity and uncertainty is bound to push oil prices higher, meaning that any reductions in export quantities may well be compensated by increased revenues.

Trump’s attempts to persuade the rest of the world to cut off its nose to spite its face, then, are likely to all on deaf ears. It is in this light that Trump’s igniting of a global trade war must be seen.

At midnight on July 5th, US tariffs on $34billion worth of Chinese imports went into effect, at a rate of 25%. Trump told reporters that tariffs on a further $16 billion worth were likely to follow in two weeks, fulfilling a pledge made in April to slap tariffs on 1300 products totalling $50 billion annually. These tariffs were designed to target the Chinese aerospace, tech and machinery industries, as well as medical equipment, medicine and educational material. The final total, however, he added, could eventually reach $550 billion – “a figure”, noted Industry Week, “that exceeds all of U.S. goods imports from China in 2017”. These China-specific tariffs follow tariffs on steel (25%) and aluminium (10%) imports imposed on the EU, Mexico and Canada four days earlier.

According to Fox Business, Canada stands to lose around $2billion per year as a result of these tariffs, with Brazil, Russia, China and South Korea each set to lose at least $500 million annually.

But this may be precisely the point: not only to ‘bring jobs back to the US’, but also to create new forms of leverage to be used against rivals and allies (and is there really a distinction between the two anyway these days?) alike. So far, of course, Trump has famously refused to offer waivers to his allies. But with Trump, nothing is forever – everything is leverage, to be played and bartered as seen fit. Could it be, then, that waivers may yet be offered to countries who manage to wean themselves off Iranian oil by the November deadline? And even if not, the very willingness to use trade as a weapon so openly and brazenly is a reminder that there may be further punishments on the way for those who do not toe the line on the strangulation of Iran. After all, as Louis Kuijs, chief economist at Oxford Economics, has pointed out, this ‘new era’ has only just begun: “Clearly the first salvos have been exchanged,” he said, “and in that sense, the trade war has started. There is no obvious end to this”.

Nevertheless, Trump’s bark may yet be well worse than his bite. For on thing, the counter-measures employed by the Chinese – a reciprocal 25% tariff on $50billion of US goods – will hit the US hard. One product subject to the new tariff, for example, is soybeans. China is the market for 25% of all soybeans grown in the US. Grant Kimberley, a soybean farmer with the Iowa Soybean Association, estimates that this tariff alone could lead to a 70% drop in exports.

But even, even apart from the Chinese counter-measures, the US-imposed tariffs themselves are likely to hurt the US as much as China. A report on NPR suggests that “for now, the blows are threatening to land hardest on non-Chinese companies like New Jersey-based Snow Joe/Sun Joe”, which – like so many other US companies, relies on Chinese imports for crucial parts of its supply chain. And in the end, of course, all of these increased costs will be passed on to the US consumer, directly depressing their real wages.

For China, however, the impact is likely to be – in the words of Ethan Harris, head of economic research at Bank of America Merrill Lynch – “quite small”.  Industry Week noted that whilst “In the past, the U.S. used its economic clout to win trade skirmishes with developing countries… China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary.” James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario, told the site that  “The dynamic is different from anything we’ve seen. China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn’t have in the past.”

 

Indeed, Trump has already been forced into retreat in some areas, given the likely repercussions. Ian Bremmer, president of the Eurasia Group consultancy, told CBS that  “Trump backed off a couple weeks ago on implementing what would have been significant measures against them. You’re familiar with the Chinese telecom firm ZTE. They were going to be made bankrupt by White House regulations what were being put in place. Trump himself intervened with a tweet saying, we don’t want to lose all of those Chinese jobs… [Trump] knows that China can hit back really hard and they can hit back in a targeted way against red states, against American farmers. So I would be very surprised if we saw significant escalation as opposed to significant rhetoric before elections in the U.S. in November, which is what we’re really talking about here.” Other possible Chinese retaliatory measures include limits on exports of rare-earth metals, essential for technologies such as smartphones, and of course the zero-option of dumping its holdings of US treasuries (although this would not be without serious pain to itself of course).

So the idea that trade war will somehow pressure China (and others) to dump Iran seems ultimately fanciful. The process of ‘delinking’ has already gone too far. China is already Iran’s biggest trading partner, and – with Chinese tariffs on US oil looming – is more likely to increase Iranian imports to replace that no longer coming from the US rather than vice versa. Iran already sells its oil to China in yuan, rather than US dollars, meaning that the entire US-controlled financial system is completely circumvented for the countries’ bilateral trade, and therefore outside the control of US-imposed financial sanctions. Looking forward, Iran is set to play a crucial role in the development of China’s mega Belt and Road Initiative, with a high speed railway planned to provide sea access to landlocked central Asia. And with French oil giant Total’s planned investment in the massive South Pars oil field in jeopardy, the contract is likely to now go to a Chinese company.

Economics professor Danny Quah noted back in 2009 that the dependence of China on US markets tended to be greatly overestimated in the west. By 2006, only 20% of Chinese exports were to the USA, with a far higher proportion going elsewhere in East Asia. In 2013, the US was not even the largest single customer for Chinese goods (it came second to Hong Kong). By 2o15, only 18% of Chinese exports were to the US; with almost half (48.5%) going elsewhere in Asia, 19.9% to Europe, 4.2% to Latin America, and 4.1% to Africa. In other words, the global South accounted for more Chinese exports than US and Europe combined. And, as is becoming clearer by the day, US and Europe are not combined.

According to the CIA’s world factbook, Chinese exports in total represent just under 20% of GDP. If we do the maths, then – 20% of 20% – it turns out that just 4% of Chinese GDP comes from exports to the US. Significant, but hardly the economic gun to the head that Trump seems to believe.

The days when loss of market access to the US meant oblivion for countries like China are long gone. The future now lies in South-South cooperation precisely along the lines of the multibillion Belt and Road Initiative. The US government understand that, and their attempts to simultaneously sabotage both China and Iran are last-ditch attempts to prevent the inevitable – further delinking, and a global economy in which the US is becoming increasingly peripheral. But the truth is, this effort is already too late.

This article originally appeared on RT.com 

08.17.18
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Trump’s attack on the lira – a new financial war on the Global South

Trump’s attack on the Turkish lira, combined with recent Federal Reserve moves to choke off dollar supply, are pushing the world towards a rerun of the 1997 currency crisis. This may well be the whole point.

Image result for turkey lira trump

Last Friday, Donald Trump announced new sanctions on Turkey – comprising a doubling of the steel and aluminium tariffs he had introduced earlier this year. Turkey’s currency was already struggling, but these new sanctions “are the straw that broke the camel’s back”, commented Edward Park of the UK investment management firm Brooks Macdonald. The same day, the Turkish lira fell to more than 6 to the dollar, the first time it had ever done so, hitting a low point of 7.21 to the dollar on Sunday. Following Turkish caps on currency swaps, it slightly regained some of its lost value, and was trading at 6.12 by Wednesday, still way below the 4.75 to the dollar it was worth last week. Whilst the Turkish move has had some effect, this should not be overstated: simply banning the trading of lira above certain limits, which is effectively what Turkey has done, is hardly a sustainable means of revalorising the currency; andaccording to the FT, investors “are still ratcheting up bets against Turkey in other ways, such as through credit default swaps that pay out in the case of a debt default”. Turkish bank shares now stand at their lowest level since 2003.

Underlying the currency’s vulnerability are the country’s massive dollar debts. Turkish companies now owe almost $300 billion in foreign-denominated debt, a figure which stands at over half its GDP. The question is – how did this happen, and why has it suddenlynow become a problem?

During the era of Quantitative Easing, the US Federal Reserve flooded US financial institutions with $3.5trillion in new dollars, much of which poured into so-called ‘emerging markets’ such as Turkey. So long as the music kept playing, this was fine – near-zero interest rates, combined with a weak dollar, made these debts affordable. But since the Federal Reserve ended its programme of QE last year – and then started to reverse it, selling off the financial assets it had purchased (and thus effectively taking dollars out of the financial system) – the dollar’s value has started to rise again, making debt repayments less affordable. This appreciation of the dollar has been compounded by two successive interest rate rises by the Reserve; but it has also been compounded by Trump’s actions. Paradoxically, Trump’s trade wars have led to a further rise in the dollar, as investors have viewed it as a ‘safe haven’ compared to other currencies deemed less able to withstand the unpredictable turbulence he has unleashed. Even the yen and the Swiss franc, traditionally viewed as ‘good as gold’ have weakened against the dollar – as, indeed, has gold itself. As Aly-Khan Satchu, financial analyst at Rich Management, has put it the “US dollar has been weaponised – either deliberately or by design” (is there a difference?), adding that the “dollar is basically knee-capping countries”, warning that other countries will face the same treatment “if they continue to pursue the policies that Erdogan is seeking to pursue”.

Thus Turkey has been hit by a quadruple whammy by the US – interest rate hikes and the choking off of dollars from the Fed; tariffs and sanctions from Trump. The result is a loss in the lira’s value of almost 40% since the start of the year.

And the effects are already being felt far beyond Turkey’s borders; the South African rand fell to a two-year low on Monday, and the Indian rupee, Mexican peso and Indonesian rupiah have all been hard hit. This is unsurprising, as the ballooning of dollar-denominated debts – from $2trillion 15 years ago to $9trillion today, largely in the global South – combined with the reversal of QE was a crisis waiting to happen. All the conditions which prefigured the 1997 East Asian currency crisis are now effectively in place. All that’s needed is a push – which is exactly what Trump has just given.

This is textbook stuff – or should be, if economics textbooks bore any relation to reality (which they don’t). The last ten years are virtually an exact replay of the decade or so running up to the 1997 crisis. Whilst the 1985 ‘Plaza Accord’ dollar devaluation was not exactly Quantitative Easing, it had the same intent and results – a flood of cheap money and dollar debt, and therefore growing global dependence on the dollar and vulnerability to US monetary and economic policy. This vulnerability was then effectively ‘cashed in’ with the ‘reverse Plaza accord’ ten years later, which, as with the current reversal of QE, choked off credit and ramped up interest rates, making markets more jumpy and bankruptcies more likely. In the end, the trigger was the collapse of the baht – the currency of a country (Thailand) with a GDP half that of Turkey – which spiralled into a crisis that ultimately spread across all of Asia, sabotaging the continent’s development and allowing US corporations to buy up some of the most advanced industrial plant in the world for a fraction of its value.

It is not hard, then, to see why Trump and the Fed might well wish to trigger such a crisis today. The more the currencies of dollar-indebted countries slide, the more real goods and services they have to pay in tribute to the US to service the same paper-dollar debts – whilst those who cannot keep up will be gobbled up for pennies on the dollar. Yet beyond these purely economic gains lies also the geopolitical imperative – to maintain and extend US domination by scuppering its rivals. Trump is, after all, about nothing if not the conversion of all possible means of power into leverage to obliterate his opponents. Forcing one country after another to the brink of bankruptcy – and therefore to the IMF for a bailout – is a means of cashing in the dollar-dependency built up over the past decade into raw power. One can easily imagine the demands the US might make in return for its support in securing an IMF bailout – end oil imports from Iran, discontinue involvement with China’s Belt and Road Initiative… the potential is vast. Already direct threats are being made against Turkey about ‘what it needs to do’ to ‘reassure the markets’ – the Times on Tuesday, for example, demanding that “Erdogan should end his spat with the West if he wants to avert a deeper crisis…his course of action should be clear: he should raise interest rates [that is, promise a bigger cut of the Turkish economy to international currency speculators], heed competent economists, explicitly guarantee the independence of the central bank [that is, remove it from democratic oversight], and make up with President Trump” – as, after all, “US support will be needed if the IMF of World Bank is to step in”. Indeed, the targeting of Turkey may well be a response to Erdogan’s insubordination in relation to Iran: noted Robert Fisk this week, “Erdogan is helping Iran to dodge US sanctions which were imposed after Trump flagrantly tore up the 2015 nuclear agreement, and – in a decision demonstrating the cowardly response of the EU’s own oil conglomerates to Trump’s insanity – has announced that he will continue to import Iranian oil. Thus will Washington’s further threat of increased oil sanctions against Iran be blunted.” Trump may well hope – as I argued recently – that tariffs can serve as a weapon to bring recalcitrant states back in line with his Iran policy.

Indeed, it is here that the false dichotomy between the ‘globalists’ and the ‘economic nationalists’ in the Trump White House – and the country at large – is, once again, exposed. When it comes to pushing the global South into bankruptcy, their interests are perfectly aligned. However much Goldman Sachs’ press releases may cry wolf about Trump’s tariffs, the reality is that the trade war is the icing on the cake of the Fed’s own policy of squeezing the ‘emerging markets’. Indeed, Wall st depends on precisely the kind of financial instability which Trump’s trade wars have triggered. As Peter Gowan has noted, “the US economy depends…upon constantly reproduced international monetary and financial turbulence” – while Wall St in particular “depends upon chaotic instabilities in ‘emerging market’ financial systems.” But by draping these actions in the flag, and parading them alongside a chorus of pseudo-shock from the ‘globalists’, their true nature is obscured. The global South now stands on the precipice – with ‘establishment liberals’ and ‘nationalist insurgents’ alike lining up to give them a shove.

An earlier version of this article originally appeared on RT.com 

08.08.17
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20 years after the East Asia crash: is history repeating itself?

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20 years ago this month, a run on the Thai currency triggered a financial crisis that quickly devastated the economy of the entire region, sinking the currencies of Thailand, Indonesia and South Korea and ultimately spreading as far as Russia and Brazil. Far from ‘lessons being learned’, however, history looks worryingly set to repeat itself.

On 2nd July 1997, Thailand’s Prime Minister Chavalit Yongchaiyudh announced that the baht, would be freely floated. The Thai government lacked the foreign exchange reserves necessary to continue pegging the currency to the US dollar – and the result was a collapse of the baht to less than half its former value.

The contagion quickly spread to Thailand’s neighbours as panicked investors began selling off their stocks in other East Asian currencies. Within months, noted the Financial Times on the 2nd January 1998, the crisis had “laid waste to what was once the most dynamic part of the world economy”, leading to a collapse of the currencies of Indonesia, Malaysia, the Philippines, and South Korea. Later that year, the economies of Russia and Brazil were seriously hit by the impact of the crisis on commodity prices, triggering crises of their own.

Across the region, economic devastation reigned. Unable to refinance their debts, companies of all sizes had their loans called in. But the collapse of their currencies meant that the value of these debts – denominated in dollars – had increased exponentially. A wave of bankruptcies drove unemployment through the roof, whilst governments hit by declining tax revenues – and IMF-imposed austerity – were forced to cut back on social safety nets. At the same time, the collapse of currency values led to rapid inflation, forcing up prices of basic essentials such as food and fuel. Poverty rates ramped up – and in Indonesia, the resulting social unrest even led to the overthrow of the government.

What had caused this devastation? In the years preceding the crash, the economies of East Asia had, under IMF tutelage, removed capital controls. This, in turn, had led to an influx of ‘hot money’ into those economies, as low returns in the developed world prompted investors to seek capital outlets elsewhere. As the Financial Times noted in January 1998, “between 1992 and 1996 net private capital flows to Asian developing countries jumped from $21bn to $101bn. …What caused the inflow was largely the search for better returns by investors made insensitive to risk and hungry for profit by the western bull market.” Those investors had been especially encouraged by the 1993 World Bank report “The East Asian miracle” praising the growth those countries had achieved. To keep their exports competitive, they had pegged their currencies to – then undervalued – dollar. But things turned sour when the so-called ‘reverse Plaza accord’ of 1995 brought about a major appreciation of the dollar, decimating the exports of the East Asian economies. It took a while for this to ‘filter through’ to investors, but once it became clear that East Asian currencies and stocks were overvalued, the herd mentality took over. “As usual,” wrote the FT, “mania ended in panic”.

Thailand, Indonesia and South Korea were all forced to take billions of dollars in emergency loans from the IMF – coming, of course, with strict conditions, which exacerbated the crisis. As is standard with the IMF, recipient governments were forced to adopt strict austerity measures, which preventing them from doing anything to stimulate demand. But they were also forced to abolish all barriers on foreigners purchasing assets such as banks and property. As a result, Western capital was able to swoop in and buy up Asian infrastructure – some of the most modern plant and machinery in the world – for pennies on the dollar, as companies unable to meet their dollar debts were forced to sell their assets at rock-bottom prices. As Wade and Veneroso wrote, “the combination of massive devaluations, IMF-pushed financial liberalisation, and IMF-facilitated recovery may have precipitated the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world”. For Professor Radhika Desai, this was “the most impressive exercise of US power the world had seen in some time”, providing, in the words of Peter Gowan, “a welcome boost for the US financial markets and through them for the US domestic economy” as “capital flows bypassed emerging-economy financial markets and went directly into the upward-moving US bond and stock markets” (Desai). Western policy had facilitated the crisis, exacerbated it, and profited immensely from it: for, as Peter Gowan has noted, “the US economy depends…upon constantly reproduced international monetary and financial turbulence” – whilst Wall St in particular “depends upon chaotic instabilities in ‘emerging market’ financial systems”.

With the western world poised to ramp up interest rates, could it be that we are again on the verge of just such an episode? The parallels are worrying.

First of all, just as during the years prior to 1997, the past decade has seen a massive influx of capital into the developing world, exacerbated by the British-US-German-Japanese ‘quantitative easing’ (QE) programmes. According to the world bank, “Over the four-year period between mid-2009 and the first quarter of 2013 [ie the first four years of the QE experiment], cumulative gross financial inflows into the developing world rose from $192 billion to $598 billion”, which, it noted, was “more than twice the pace compared to the far more modest increase of $185 billion between mid-2002 and the first quarter of 2006”.  Former foreign secretary of India, Shyam Saran, warned of the potentially destabilising effects of this influx back in 2013: “According to one estimate, about 40 percent of the increase in the U.S. monetary base in the QE-1 phase leaked out in the form of increased gross capital outflows, while in the QE-2 phase, it may have been about one-third. This massive and continuing surge of capital outflows to emerging and other developing economies is having a major impact. Corporations, which have a sound credit rating, are taking on more debt, and increasing their foreign exchange exposure, attracted by low borrowing costs. Their vulnerability to future interest rate changes in the developed world and exchange rate volatility will increase.” The Daily Telegraph has also picked up on this vulnerability, noting that “Nobody knows what will happen when the spigot of cheap dollar liquidity is actually turned off. Dollar debts outside US jurisdiction have ballooned from $2 trillion to $9 trillion in fifteen years, leaving the world more dollarised and more vulnerable to Fed action than at any time since the fixed exchange system of the Gold Standard.” Even the World Bank have admitted that the reversal of QE “is a central concern for developing economies, which have struggled to cope with the surge in financial inflows that they have experienced over the past several years, and are fearful that the renormalization of high income monetary policies will be accompanied by a disorderly sudden stop in capital inflows.” Later in their study, they conclude that “These fears were not unfounded”. Just as during the pre-1997 period, emerging markets are dangerously leveraged, with the influx of ‘hot money’ into the developing world leaving it exceptionally vulnerable to any action that might reverse this flow. And such action is almost certainly on the cards.

On July 18th, the Times’ economics editor Philip Aldrick wrote that “In two months’ time, the US Federal Reserve is expected to begin the next phase in the greatest economic experiment of modern times. America’s central bank has signalled that it may start unwinding quantitative easing in September with the piecemeal sale of the $3.5trn of bonds bought since QE’s 2008 launch. No one quite knows what happens next, but the gloomiest predict another financial maelstrom. One thing is certain. Borrowing costs will rise”. Indeed, he writes, “it’s already happening. Government bond yields, used to price everything from fixed rate mortgages to corporate loans to pension schemes, have jumped. Since June, the yield on ten-year UK gilts has risen from below 1% to 1.275%. The same is happening in US and German bonds.

Against the backdrop of automatic global monetary tightening, a Fed decision to flood the market with more bonds would lift borrowing costs even higher.” In other words, we are entering an era of rising effective interest rates exactly like that which prefigured the 1997 crisis.

A second parallel is that the debts being accumulated in the global South are, again, largely denominated in dollars. In 1997, this was devastating as it meant that, as local currencies dropped in value, their dollar debts effectively escalated by the same amount; had the debts been denominated in local currency, the number of bankruptcies would not have been nearly so large. To guard against a repeat scenario, therefore, the countries hit in 1997 began to issue debt only in their own currency: those wishing to invest would have to first convert their money into the local currency, and only then could they do so. As the years passed, however, complacency seems to have set in: to such an extent that, today, according to the Bank of International Settlements, non-bank borrowers in emerging markets have now accumulated more than $3 trillion in dollar-denominated debt. According to a report published by the Bank last year, “The accumulation of debt since the global financial crisis has left EMEs [emerging market economies] particularly vulnerable to capital outflows. As private sector borrowing has led to overheating in several large EMEs, the unwinding of imbalances may generate destabilizing dynamics.” The report goes on to note that around $340 billion of developing country debt will be maturing this year, “creating a potential default risk if investors start pulling money out of emerging markets”.

All the warning signs are there. Writing for Bloomberg, Lisa Abramowicz wrote in November 2016 that “the debt of developing economies is positioned uniquely for pain.” Noting Adair Turner’s warning that “the large increase of emerging-market debt, much of it denominated in dollars,” is one of the biggest risks in the financial system right now, she added, “All that money is owed to somebody, and a failure to pay it back will cause big ripple effects. So as emerging markets come under stress, bond investors around the world should take note. As the dollar continues to strengthen, it’s not a stretch to see how this developing-market debt selloff can worsen, having far-reaching consequences on markets around the world.”

Others have specifically drawn attention to the parallels with 1997. Reporting on a speech by Bill Dudley, head of the New York Fed, the Telegraph noted that he had “hinted that the Fed may opt for the fast tightening cycle of the mid-1990s, an episode that caught markets badly off guard and led to the East Asia crisis and Russia’s default.” And the above quoted former foreign secretary of India, Shyam Saran, warned that “The Asian financial crisis of 1997/98 was, in part, triggered by an earlier version of QE pursued by Japan in the aftermath of the bursting of its property and asset bubble in the early 1990s. Then, too, the large inflow of low-cost yen loans led to the asset price bubbles, inflationary pressures and currency instability in the Asian economies.”

Of course, triggering a new crisis by ramping up interest rates and selling off bonds – precisely at a time when a large portion of developing world debts are maturing – would hurt the West as well. Yet this seems to be precisely what is being planned. Because if a new crisis is inevitable – and I believe the inherent capitalist tendency towards overproduction means it is – it makes perfect sense to time it at a moment when the global South will be forced to bear the brunt. And, even if the US it hit, so long as everyone else is hit harder, that is a net gain for US power. As the Telegraph noted, “The US is perhaps strong enough to withstand the rigours of monetary tightening. It is less clear whether others are so resilient.” And, says Abramowicz, “While bonds globally are posting some of the biggest losses on record, debt of U.S., Germany, Japan and other large economies will eventually have natural buyers that can swoop in and support values.”

Fans of Breaking Bad will remember the memorable scene in which drug lord Gus Fring arrives at the mansion of his arch rival Don Eladio with a bottle of poisoned tequila disguised as a peace offering. Eladio is suspicious, so to prove its purity, Gus drinks the first shot. Whilst the rest of the cartel are poisoning themselves, he heads to the bathroom to make himself sick. After nearly dying, he eventually recovers – whilst his rivals’ corpses  lay strewn around the swimming pool. Is the US hoping to pull the same stunt – choking themselves, but fatally throttling everyone else in the process, so they can swoop in and pick up the pieces? It wouldn’t be the first time.

This article originally appeared on RT.com

07.22.17
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Quantitative Easing – the most opaque wealth transfer in history

 

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“Where did the quantitative easing money go? The answer in a graph” – from Tax Research UK

It appears that the massive, almost decade-long, transfer of wealth to the rich known as ‘quantitative easing’ is coming to an end. Of the world’s four major central banks – the US federal reserve, the Bank of England, the European Central Bank and the Bank of Japan – two have already ended their policy of buying up financial assets (the Fed and the BoE) and the ECB plans to stop doing so in December. Indeed, the Fed is expected to start selling off the $3.5trillion of assets it purchased during three rounds of QE within the next two months.

Given that, judged by its official aims, QE has been a total failure, this makes perfect sense. QE, by ‘injecting’ money into the economy, was supposed to get banks lending again, boosting investment and driving up economic growth. But overall bank lending in fact fell following the introduction of QE in the UK, whilst lending to small and medium sized enterprises (SMEs) – responsible for 60% of employment – plummeted. As Laith Khalaf, a senior analyst at Hargreaves Lansdown, has noted: “Central banks have flooded the global economy with cheap money since the financial crisis, yet global growth is still in the doldrums, particularly in Europe and Japan, which have both seen colossal stimulus packages thrown at the problem.” Even Forbes admits that QE has “largely failed in reviving economic growth”.

 

This is, or should be, unsurprising. QE was always bound to fail in terms of its stated aims, because the reason banks were not funnelling money into productive investment was not because they were short of cash – on the contrary, by 2013, well before the final rounds of QE, UK corporations were sitting on almost£1/2trillion of cash reserves – but rather because the global economy was (and is) in a deep overproduction crisis. Put simply, markets were (and are) glutted and there is no point investing in producing for glutted markets.

This meant that the new money created by QE and ‘injected’ into financial institutions such as pension funds and insurance companies was not invested into productive industry, but rather went into stock markets and real estate, driving up prices of shares and houses, but generating nothing in terms of real wealth or employment.

Holders of assets such as stocks and houses, therefore, have done very well out of QE, which has increased the wealth of the richest 5% of the UK population by an average of £128,000 per head.

How can this be? Where does this additional wealth come from? After all, whilst money – contrary to Tory sloganeering – can indeed be created ‘out of thin air’, which is precisely what QE has done, real wealth cannot. And QE has not produced any real wealth. Yet the richest 5% now have an extra £128,000 to spend on yachts, mansions, diamonds, caviar and so on – so where has it come from?

The answer is simple. The wealth which QE has passed to asset-holders has come, first of all, directly out of workers’ wages. QE, by effectively devaluing the currency, has reduced the buying power of money, leading to an effective decrease in real wages, which, in the UK, still remain 6% below their pre-QE levels. The money taken out of workers’ wages therefore forms part of that £128,000 divided. But it has also come from new entrants to the markets inflated by QE – primarily, first time buyers and those just reaching pension age. Those buying a house which QE has made more expensive, for example, will likely have to work thousands of additional hours over the course of their mortgage in order to pay this increased cost. It is those extra hours that are creating the wealth which subsidises the yachts and diamonds for the richest 5%. Of course, these increased house prices are paid by anyone purchasing a house, not only first time buyers – but the additional cost for existing homeowners is compensated for by the rise in price of their existing house (or by their shares for those wealthy enough to hold them).

QE also means that newly retiring pensioners are forced to subsidise the 5%. New retirees use their pension pot to purchase an ‘annuity’ – a bundle of stocks and shares generating dividends which serve as an income. However, as QE has inflated share prices, the number of shares they can buy with this pot is reduced. And, as share price increases do not increase dividends, this means reduced pension payments.

In truth, the story that QE was about encouraging investment and boosting employment and growth was always a fantastical yarn designed to disguise what was really going on – a massive transfer of wealth to the rich. As economist Dhaval Joshi put it in 2011: “The shocking thing is, two years into an ostensible recovery, [UK] workers are actually earning less than at the depth of the recession. Real wages and salaries have fallen by £4bn. Profits are up by £11bn. The spoils of the recovery have been shared in the most unequal of ways.” In March this year, the Financial Times noted that whilst Britain’s GDP had recovered to pre-crisis levels by 2014, real wages were still 10% lower than they had been in 2008. “The contraction of UK real wages was reversed in 2015,” they added, “but it is not going to last”. They were right. The same month the article was published, real wages began to fall again, and have been doing so ever since.

It is the same story in Japan, where, notes Forbes, “household income actually contracted since the implementation of QE”.

QE has had a similar effect on the global South: enriching the holders of assets at the expense of the ‘asset-poor’. Just as the influx of new money created bubbles in the housing and stock markets, it also created commodity price bubbles as speculators rushed to buy up stocks of, for example, oil and food. For some oil producing countries this has had a positive effect, providing them a windfall of cash to spend on social programmes, as was initially the case in, for example, Venezuela, Libya and Iran. In all three cases, the empire has had to resort to various levels of militarism to counter these unintended consequences. But oil price hikes are, of course, detrimental to non-oil-producing countries – and food price hikes are always devastating. In 2011, the UK’s Daily Telegraph highlighted “the correlation between the prices of food and the Fed’s purchase of US Treasuries (i.e. its quantitative easing programmes)…We see

how the food price index broadly stabilised through late 2009 and early 2010, then rose again from mid-2010 as quantitative easing was re-started …with prices rising about 40% over an eight month period.” These price hikes pushed 44 million people into poverty in 2010 alone – leading, argued the Telegraph, to the unrest behind the so-called Arab Spring. Former World Bank president Robert Zoellick commented at the time that

“Food price inflation is the biggest threat today to the world’s poor…one weather event and you start to push people over the edge.” Such are the costs of quantitative easing.

The BRICS economies were also critical of QE for another reason: they saw it as an underhand method of competitive currency devaluation. By reducing the value of their own currencies, the ‘imperial triad’ of the US, Europe and Japan were effectively causing everyone else’s currencies to appreciate, damaging their exports. This is exactly what happened: wrote Forbes in 2015, “The effects are already being felt in the most dynamic exporter in the world, the East Asian economies. Their exports in US dollar terms moved dramatically from 10% year-on-year growth to a contraction of 12% in the first half of this year; and the results are the same whether China is excluded or not.”
The main benefit of QE to the developing world is supposed to have been the huge inflows of capital it triggered. It has been estimated that around 40% of the money generated by the Fed’s first QE credit expansion (‘QE1’) went abroad – mostly to the so-called ‘emerging markets’ of the global South – and around one third from QE2. However, this is not necessarily the great boon it seems. Much of the money went, as we have seen, into buying up commodity stocks (making basic items such as food unaffordable for the poor) rather than investing in new production, and much also went into buying up stocks of currency, again causing an export-damaging appreciation. Worse than this, an influx of so-called ‘hot money’ (footloose speculative capital, as opposed to long term investment capital) makes currencies particularly volatile and vulnerable to, for example, rises in interest rates abroad. Should interest rates rise again in the US and Europe, for example, this is likely to trigger a mass exodus of capital from the emerging markets, potentially prefigurng a currency collapse. Indeed, it was an influx of ‘hot money’ into Asian currency markets very similar to that seen during QE which preceded the Asian currency crisis of 1997. It is precisely this vulnerability which is likely to be tested – if not outright exploited – by the coming end of QE and accompanying rise of interest rates.

This article originally appeared on RT