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Money Managers for Mankind? China in the Age of Global Governance, Part III
By: Andrew Gavin Marshall
3 March 2016
Originally posted at Occupy.com on 9 February 2016
In pursuing the strategy toward China of “integrate, but hedge,” the United States and its G-7 allies attempted to manage China’s global financial role, giving the world’s second largest economy a greater stake in the existing system while attempting to prevent alternative or antagonistic emerging market economies from gaining power.
However, due to the slow pace of reforms and their often disappointing results – case in point: the five-year delay of International Monetary Fund (IMF) reforms that would give China and other emerging economies greater influence in the Fund and World Bank – China has turned to creating its own development bank, the Asian Infrastructure Investment Bank (AIIB). And while China was developing the AIIB over the course of 2015, China was not only hedging its own bets – it was also advancing a strategy of “integration” on the monetary front. In the world of currencies, central banks and the global monetary order, China had an important year.
The main issue has been the inclusion of the Chinese currency – the yuan, or renminbi – in the elite basket of currencies managed by the IMF known as Special Drawing Rights (SDRs). Consisting of four of the world’s most traded currencies (the U.S. dollar, the euro, Japanese yen and British pound), the SDR is a currency unit whose value is weighted among those four currencies and used in IMF transactions between nations and central banks. But the real importance of the SDR basket is that it is a symbolic grouping of the few select currencies (and countries) that dominate the global monetary system. They are the most traded, saved and important currencies in the world, giving the countries and institutions that control them inordinate power in the global monetary and economic system.
China has lobbied for years to be included in the SDR basket, as both a sign of its global economic status and as a recognition of its new geopolitical power. But for China to be included, it needed to meet a number of criteria related to how easily tradable the currency is, how many central banks use the currency as a reserve asset, and whether or not interest rates are determined by market forces. Eswar Prasad, an economics professor at Cornell University who was previously the China country director at the IMF, commented that “this is ultimately going to be decided on political rather than economic merits.”
In laying the groundwork for inclusion, the IMF announced late last May that the renminbi was no longer considered to be “undervalued” – a long-held complaint of the IMF, United States and other G-7 nations that felt for such a large economy to maintain such a cheap currency gave it an overwhelming trade advantage, keeping its products cheaper and thus more competitive in international markets. Thus, the IMF’s declaration paved the way for consideration of the Chinese currency to be included in the SDR.
When the G-7 finance ministers and central bank governors met in Berlin in late May, they discussed the potential inclusion of the renminbi in the SDR basket. German Finance Minister Wolfgang Schauble said that “it is desirable in principle” but “the technical conditions must be examined.” The G-7 countries continued to push China to reform its capital markets in order to increase its potential for inclusion. This pressured China to implement further market reforms to “liberalize” its financial markets, allowing for private financial institutions to play a larger role in managing the country’s economy (as opposed to being more state-directed and managed).
Earlier that same month, the People’s Bank of China (PBoC), China’s central bank, approved roughly 30 foreign financial institutions to invest its domestic bond market, giving banks like HSBC, BNP Paribas, Société Générale, ING and Morgan Stanley greater access to the world’s third largest bond market (following the U.S. and Japan). China made moves over subsequent months to increase the access of foreign central banks and sovereign wealth funds to its bond market, as the country continued reforms that liberalized its economy. However, China still remained hesitant to adapt market forces too quickly or too fully that might have the effect of destabilizing the economy.
In August, the IMF recommended that while the renminbi should be added to the SDR basket, with a final decision to be made in November, the currency’s actual addition to the basket should not take place until September of 2016. This was in order to allow the country to implement further financial reforms and give banks, central banks and asset managers enough time to adjust their currency holdings to a slightly reformed monetary order. Some G-7 countries, such as Germany, France, Britain and Italy, favored a quick inclusion of the renminbi to the SDR, but Japan and the U.S. favored a more cautious approach.
Then, partway into August, China shocked global financial markets with a rapid currency devaluation – done partly to provide a boost to its own slowing economy – raising criticism from several countries that China was engaging in a currency war to lower the value of the renminbi in order to boost exports at the expense of other nations. However, because China’s currency is so closely tied to the U.S. dollar, as the dollar has risen in value over the past year or so, China’s currency has risen with it. This has put further strain on China’s economy and decreased its competitiveness relative to other global currencies whose value has declined relative to the rise of the dollar. That’s why, when China devalued in August, it explained the move as an attempt to move more towards a market oriented value for its exchange rate.
China was accused of currency manipulation due to its sudden devaluation, though it was in fact more accurately a response to the pressures from the manipulated changes in the value of the big currencies (U.S. dollar, Japanese yen and euro), which fluctuated in response to the winding down or ramping up of their respective Quantitative Easing (QE) programs. China managed to mute some harsher criticisms of its move by quickly announcing further market-oriented reforms to its financial and interest rate markets.
At a meeting of G-20 finance ministers and central bank governors in early September, U.S. Treasury Secretary Jacob Lew pressured his Chinese counterparts to continue the process of implementing market reforms, and specifically allowing markets a larger say in determining the value of the Chinese currency.
In mid-November, the IMF officially recommended that China be included in the SDR basket, which would “turn its currency into one of the pillars of international finance,” noted the New York Times. However, the final decision was to be made by the IMF’s Executive Board at the end of the month, where the G-7 countries have the power to pass or block any final moves. Following the IMF staff recommendation, China’s central bank announced that it would be implementing further reforms to allow markets more of a say in setting interest rates. And in late November, the IMF Executive Board voted in agreement to let the renminbi be included in the SDR basket, effective October 1, 2016.
Then, partway into December, China announced that it would begin to measure the value of its currency against a basket of 13 currencies instead of just the U.S. dollar. This would give the currency more room to fall in value relative to the U.S. dollar’s rise, and would give the country more “monetary independence” from the decisions and actions of the U.S. Federal Reserve. The announcement came just as the Fed was set to raise interest rates for the first time in nearly a decade, a move that would drive the U.S. currency even higher and put even more pressure on China as its economy continues to slow. In response, the Chinese currency hit a new four-year low against the U.S. dollar, increasing the country’s trade competitiveness.
The rise of China is one of the most important economic stories of the late 20th and early 21st centuries, and will continue to remain so. While the United States and the G-7 seek to “integrate, but hedge” their bets in bringing China into the structures of global economic governance, such as through inclusion into the SDR basket, China continues to pressure for greater political power commensurate with its economic weight, “hiding its brightness, biding its time.” But the time is increasingly present, visible with China’s founding of the Asian Infrastructure Investment Bank (AIIB), as a potential rival to the World Bank.
The integration of China into the structures and systems of global economic governance will have lasting ramifications. Not simply because it represents a shift from the dominance that the G-7 nations held over the global economy for the past four decades, but because the Chinese model of state-run totalitarian capitalism itself presents an alternative approach to constructing a market economy. As China increasingly becomes a part of the governing structure of the world economy, its model will gain increased influence. Indeed, if war and hostilities between the other great powers are to be avoided, the future of global capitalism may well rely on a combination of Western markets and institutions backed up by totalitarian institutions like the regime in Beijing.
Given that the capitalist system is experiencing a crisis in its legitimacy – with warnings from the head of the Bank of England, the IMF, and influential financial dynasties that the system is increasingly under threat due to its excesses – democracy may no longer be compatiblewith capitalism. And totalitarian state structures may be the only way to save capitalism from itself.
“Hide Your Brightness, Bide Your Time”: China in the Age of Global Governance, Part II
By: Andrew Gavin Marshall
3 March 2016
Originally posted at Occupy.com on 2 February 2016
This is the second article in a three-part series focusing on China’s transformed role on the world financial stage. Read the first part here.
One of the most important developments in the global economy over the past thirty years has been the integration of China into the global economic system and its governing institutions. The United States and the G-7, which collectively dominate these institutions, have managed the process in a slow, incremental fashion, allowing China a larger voice, greater representation and more authority in return for its implementation of reforms to further advance the market economy and allow Western banks and corporations greater access to the Chinese market.
But China, and other emerging market economies, have become increasingly frustrated with the slow efforts on the part of the G-7 nations and the institutions they control. With emerging economies, and notably China, accounting for such a large share of global economic growth and wealth, those countries feel increasingly underrepresented in international economic institutions and decision-making. Their international political power does not accurately reflect their international economic influence.
Integration and greater representation within the global economic architecture is designed to give emerging economies a greater stake in the international economic and political system, providing them with ownership and authority. However, if the process is too slow or the results too weak, emerging economies could potentially create their own parallel institutions and perhaps even (in the long term) construct a parallel or opposing economic system altogether.
China is the most important emerging market economy and the one at the forefront of this process of integration. The United States has for decades pursued a strategy toward China described as “integrate, but hedge.” In a nutshell, the concept is that it is imperative to bring China within the international system, but it must be done slowly and in a way that curbs China’s potential capacity to disrupt the system or existing power structures. However, such a strategy can backfire, for hedging bets can easily transform into antagonism, pushing China to adopt more aggressive responses and ultimately creating the circumstance such a strategy was supposed to avoid.
This process is evident in the development of the Asian Infrastructure Investment Bank (AIIB), which came in response to the slow efforts by the U.S. to give China and other emerging economies greater representation and ownership in the International Monetary Fund (IMF) and World Bank. In 2010, the IMF agreed to implement reforms to its governance structure and that of its sister institution, the World Bank – which is dominated by the U.S. and the G-7 – allowing several emerging market countries to gain increased shares and power within the 188-member-nation institutions.
But since the reforms were agreed in 2010 and ratified by virtually every nation in the world, only the U.S. has refrained, held back by a Congress that proclaims its wariness to give up any influence within the Fund. However, America would maintain its status as the top shareholder in the IMF and World Bank, while remaining the only one with veto power, and Japan would keep its position as the second largest shareholder. But the reforms would elevate China from the Fund’s sixth largest shareholder to third largest, putting it ahead of Germany, the United Kingdom and France.
Following years of delays in ratifying the IMF’s quota and shareholder reforms, Chinese President Xi Jinping announced in October of 2013 plans for the formation of “a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia.” The so-called Asia Infrastructure Investment Bank would present a challenge to the role of the World Bank and the Asian Development Bank (ADB), in which Japan and the U.S. are the two largest shareholders.
The U.S. was quick to pursue a strategy of containment and opposition to the proposed bank. As China was engaging in behind-the-scenes diplomacy with several Asian, European and other large nations around the world to gain support for the AIIB, the United States was lobbying its allies to oppose the bank and refuse to join its membership. China was meanwhile attempting to secure a roster of rich nations to join the AIIB as founding members and thus provide the development bank with much-needed capital. The U.S., however, was pressuring South Korea and Australia, among others, to reject the proposal and ensure that “membership in the bank would be limited to smaller countries, depriving it of the prestige and respectability the Chinese seek.”
At first, the U.S. lobbying and pressure seemed to work. When the AIIB was officially founded in late October of 2014, it had a membership of roughly 20 smaller countries along with China. The only other large nation to join was India. But in March of 2015, the UK defied pressure from the U.S. and announced that it would be joining the AIIB. U.S. officials weren’t pleased; one told the Financial Times that Washington was frustrated with Britain’s “trend toward constant accommodation of China.” This approach, said the official, “is not the best way to engage a rising power.”
Once Britain, a G-7 member, joined the AIIB, it led the way for other powerful and rich nations to do so. Within days, three other G-7 nations – Germany, France and Italy – all announced they were joining the bank. At the same time, Japan, China’s major competitor for economic, political and military influence in the region, said it was sticking by its major patron, the United States, and refused to join the AIIB. “The United States now knows Japan is trustworthy,” said Japanese Prime Minister Shinzo Abe.
But the American strategy of opposition to the AIIB was not without its critics. Lawrence Summers, the former U.S. Treasury Secretary, former chief economist at the World Bank, and a top economic adviser to President Obama in his first term, wrote in the Financial Times that the U.S. decision to oppose the AIIB could represent “the moment the United States lost its role as the underwriter of the global economic system.” Summers wrote that “the global economic architecture needs substantial adjustment,” with the U.S. and G-7 nations needing to adapt to a world in which China was virtually the same economic size as the United States, and in which emerging market economies accounted for roughly half of global wealth.
The President of the World Bank, U.S.-appointed Jim Yong Kim, pledged to find ways to cooperate with the new Chinese-led development bank, as did the Japanese head of the Asian Development Bank (ADB). Former World Bank President Robert Zoellick also wrote that U.S. opposition to the AIIB was “a strategic mistake.” Even President Obama in April suggested that the AIIB could potentially be a “good thing,” but stressed that it would have to adopt the standards set by U.S. and Western-controlled institutions like the World Bank.
In June of last year, former Federal Reserve Chairman Ben Bernanke chimed in, saying, “The U.S. Congress is largely at fault for all that’s happening,” referring to the role of the legislature in blocking the ratification of the IMF’s reforms. Because of this, he explained, China and other countries have been increasingly looking to create their own regional institutions. “It would have been better to have a globally unified system,” said Bernanke.
By September, following a state visit between Chinese President Xi Jinping and President Obama at the White House, the U.S. formally announced “what amounts to a truce” over their opposition to the AIIB, with the U.S. saying it would stop lobbying against the institution in return for China agreeing to increase its financial contributions to institutions like the World Bank. However, both the United States and Japan continued to refuse to join the AIIB as members. At a joint press conference, President Xi said that “China is the current international system’s builder, contributor and developer and participant, and also beneficiary.” China was willing, he added, “to work with all other countries to firmly defend the fruits of victory of the second world war, and the existing international system.”
According to plan, the AIIB is to start with a capital base of $100 billion, and its ownership structure is designed to give countries in the Asia Pacific region roughly 75% of the voting shares, “giving smaller Asian countries a greater say than they have in other global organizations.” China provides the AIIB with nearly $30 billion of its $100 billion, giving its chief backer between 25% and 30% of voting shares and the only veto, since major decisions require a 75% majority.
The second largest contributor and shareholder is India, providing $8.4 billion, followed by Russia at $6.5 billion. Next is Germany with a $4.5 billion contribution, South Korea and Australia each providing $3.7 billion, with France and Indonesia each contributing $3.4 billion. Among the other large shareholders are Brazil, the UK, Turkey, Italy, Saudi Arabia, Spain, Iran, Thailand and the Netherlands.
The result: while the U.S. and Japan sit on the sidelines hedging their bets, the AIIB starts its place in the world of global economic governance with a membership of 57 nations from around the world. As former Chinese leader Deng Xiaoping said several decades ago, “Hide your brightness; bide your time.” With the founding of the AIIB, China may very well be staking a claim on its time for greater power in the global economy.
Meet the Secretive Committees that Run the Global Economy
By: Andrew Gavin Marshall
8 October 2015
Originally published at Occupy.com
There exists an overlapping and highly integrated network of institutions, committees and secret meetings of ad-hoc groups that collectively run the global economy. This network consists of finance ministries, central banks, international organizations and the various conferences and confabs that bring them together. This network is responsible for facilitating global financial diplomacy and managing the architecture of global financial governance. In short: it is the most powerful and informal political structure in the world.
With the United States at the center of the system, the Treasury Department and Federal Reserve Bank are the two most important American institutions in global financial governance – and the Treasury Secretary and Federal Reserve Chairperson are the world’s two most powerful financial diplomats. Both institutions are headquartered in Washington, D.C., just down the street from the headquarters of the International Monetary Fund (IMF) and World Bank Group, two global financial bodies created in 1944 to manage the world economy on behalf of the rich Western nations that founded them.
Twice a year, the IMF and the World Bank host large international conferences. The Spring Membership Meeting, typically held in April, and the Annual membership meeting draw a crowd consisting of most of the finance ministers and central bank governors from the IMF’s 188 member nations, representing the Fund’s Governing Board. They descend on D.C. where the meetings are typically held (though occasionally they are hosted in other countries as well), and draw scores of journalists, academics and thousands of bankers and financiers who are eager to meet, greet, wine, dine and make deals with the political decision-makers of the global economy.
The top five shareholders of the IMF (United States, Japan, Germany, France and U.K.) reflect the membership of an ad-hoc group of finance ministers that began meeting in 1973, thereafter known as the Group of Five (G-5). At the time, U.S. Treasury Secretary George Shultz described the group as “a channel for informal and very frank communication on monetary and other issues, both of a long-term and more immediate character.” But the G-5 was hardly the first of such groups.
In 1962, the Group of Ten (G-10) was formed as a meeting of finance ministers and central bank governors from the rich industrial nations, including the U.S., West Germany, Japan, France, U.K., Italy, Canada, Belgium, Sweden, Netherlands (and eventually Switzerland, although the name remained the same). The G-10 would meet alongside the leaders of the IMF, the Organization for Economic Cooperation and Development (OECD) and the Bank for International Settlements (BIS).
Following the U.S. unilateral decision to end the Bretton Woods monetary system in 1971, a series of committees and groups were established to provide forums for major economies of the world to negotiate forming a new monetary system, and to integrate developing economies into the institutional apparatus of global financial governance. The Group of Ten was utilized as one such forum.
In 1972, the G-10 laid the groundwork for the establishment of a special Committee of 20 to be formed within the IMF, whose membership reflected the composition of the IMF Executive Board, but at the ministerial level – giving it a much higher level of political authority than the board, which is composed of mid-level officials from their respective national finance ministries. The committee would include most G-10 members alongside several developing country representatives, and was formally institutionalized in late 1974 as the “Interim Committee” of the IMF.
(Although the Group of Five was formed in 1973, it wasn’t until 1975 that it held the first meeting at the head of state level, with the addition of Italy to the group. The following year, Canada was invited to participate, and thereafter it was known as the Group of Seven (G-7), effectively functioning as the steering committee for the global economy.)
Fast forward to the mid-1990s, when the G-7 nations instructed the Group of Ten to consult with emerging market economies on ways to reform the global financial architecture in cooperation with major international organizations like the IMF, World Bank, OECD, and BIS, which were increasingly opening their membership and ownership positions to large emerging market economies.
The idea was thus: If developed countries give developing countries a stake in the existing system, they won’t use their new-found wealth and power to oppose that system. And all the while, the West was to remain at the center. Through crisis and collapse and “rescue” efforts led by the IMF, BIS and World Bank, developing and emerging market economies were encouraged to accept Western economic “advice” on how to manage their economies. If they wanted bailouts in the form of loans from international institutions, those countries had to follow conditions that demanded a total restructuring of their economies and societies along G-7 lines – designed to transform them into modern “market economies” capable of integrating into the larger global economy.
The groundwork was laid out over the following years, and in the course of 1999, the IMF’s Interim Committee was reformed into the International Monetary and Financial Committee (IMFC). The G-10 organized several seminars involving major emerging market economies and, together with the G-7, formed a new group known as the Financial Stability Forum (FSF), a meeting group of central bankers, finance ministers and regulators who were handed responsibility for maintaining financial stability in the world. Finally, 1999 also saw the organizing efforts of the G-7 result in the formation of yet another forum, the Group of Twenty (G-20).
The G-20 was born in December of 1999 at a meeting of finance ministers and central bank governors from the G-7 nations, along with Russia, China, India, Brazil, Indonesia, Korea, Australia, Mexico, Saudi Arabia, South Africa, Turkey, Argentina and the European Union. The event was attended by top officials from the IMF, World Bank and the European Central Bank. But despite all the international noise, the G20 was largely the initiative of two men: Canadian Finance Minister Paul Martin and U.S. Treasury Secretary Lawrence Summers.
The G-7, or G-8 once Russia was invited in, remained the main forum for global economic leadership. But in the midst of the global financial crisis in 2008, the G-20 was the group convened by U.S. President George W. Bush, who brought together heads of state for the first meeting that took place in Washington on November 15. That meeting produced an agreement among G-20 nations to pump trillions of dollars into their economies in order to bail out their banking systems.
In 2010, then-President of the European Central Bank, Jean-Claude Trichet, explained at a meeting of the Institute of International Finance (IIF) that the G-20 had emerged “as the prime group for global economic governance.”
Speaking to a crowd of hundreds of the world’s most powerful bankers and financiers, Trichet explained, “Global economic governance embraces supranational institutions – such as the IMF – as well as informal groupings – such as the G-7 and the G-20. Both are necessary, and both are complementary.” Trichet praised the evolving system as “moving decisively towards a much more inclusive system of global governance, encompassing key emerging economies as well as the industrialized countries.”
To this day, the hierarchy of global economic governance follows a familiar pattern. Take the IMF’s meetings, where 188 of the world’s finance ministers and central bankers meet. The International Monetary and Financial Committee (IMFC) holds a meeting, functioning as the steering committee to the Fund. And prior to IMFC meetings, the G-20 finance ministers and central bank governors hold a series of meetings, including a joint meeting with the IMFC, as they already have a significant crossover of membership.
But before the G-20 meets, the ministers and governors of the G-7 nations typically meet privately for an hour or so, attempting to form a common position or strategy in dealing with the wider groupings of the G-20 and IMFC, in which all G-7 nations are represented at the ministerial level. The chiefs of the world’s major international organizations (IMF, World Bank, OECD, WTO, BIS) participate in almost all of these meetings, acting as advisers to and receiving high-level political direction from these groups.
The hierarchy of global economic governance emanates out of the United States, in close cooperation with Germany, Japan and the other members of the Group of Seven. From there, it networks through the Group of Twenty and the IMFC, which in turn collectively function as the steering committee for the world’s major international organizations, and act as the board of directors of the global economy.
The Global Mafiocracy and the Empire of Economics
By: Andrew Gavin Marshall
26 March 2015
I am aiming to raise $500 in order to complete and publish for all to view and read a sample introduction chapter to my book about the Global Mafiocracy and the Empire of Economics. The chapter would provide a sampling of the subject matter, style and approach to discussing these complex issues in a way that is understandable and approachable to as wide an audience as possible. The sample chapter would be completed relatively soon (in the next week or two), so long as the funding objective is reached so that I can afford to put in the time to complete the draft.
So what is the subject matter and focus of the book?
– Translating the world of Economics and Finance into basic English, dismantling the ‘technical’ language of ‘experts’ into a more direct and honest dialectic
– An introduction to the Global Mafiocracy: the banks, corporations, asset management firms, sovereign wealth funds, insurance companies and holding companies that collectively own each other and the wider network of global corporate and financial institutions, manifesting as a relatively small cartel of roughly 150 large financial institutions that wield unparalleled financial power in the modern world. How did the cartel evolve? What institutions are dominant within it? Who are the individuals and groups that lead these organizations? How is the cartel’s wealth and power accumulated and exercised? What role does the cartel play in the world of global finance, economic and politics?
– Behind the major corporate and financial institutions are individuals and families, smaller units of concentrated power who own the largest shares and steer the operations of the global cartel. These individual oligarchs and family dynasties – from the Rockefellers in the US, to the Wallenbergs in Sweden, Agnellis in Italy, Desmarais’ in Canada, to the House of Saud in Saudi Arabia, Oppenheimer in South Africa, among others – control and.or influence large percentages of wealth within their respective nations and in the world of globalized financial and corporate networks. How did these dynasties and oligarchs emerge? What do they own and control? How is their wealth and power organized and exercised? What are their ideologies, beliefs, objectives?
– Empire and Economics: When people think of Empire, they often imagine the old European colonial powers venturing off to Africa, Latin America and Asia where they would militarily occupy and colonize foreign lands, regions and peoples for their own imperial benefit. While formal colonialism is largely an historical anachronism, unjustifiable and increasingly untenable in the modern world, Empire itself has never vanished. While the military and overtly political components of empire and imperialism remain relevant in the modern world (think: U.S. military, CIA, State Department, NATO, etc.) the most effective and evolved means of imperialism in the world are exercised through the economic and financial spheres. In these realms, empire is more effective because its ideology, objectives, actions and effects are hidden behind vague and obscure language, the “expertise” of economists, finance ministers, central bankers and other technocrats who claim to be separate of politics and only interested in economics. Empire is more evolved in these spheres because it has become the vanguard of the global Mafiocracy and imperial system, leading the political and often military apparatus of empire, far more institutionalized and advanced on a global scale than any parallel in political and military spheres.
– Global Financial Diplomacy and Governance: What are the institutions that manage and shape the imperial economic order? In the world of financial diplomacy and governance, those institutions which wield incredible (and increasingly expanding) power and authority remain largely unknown or misunderstood to the general public. The book will examine some of the origins, evolution and character of many of these institutions, including: the International Monetary Fund (IMF), World Bank, Bank for International Settlements (BIS), Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), central banks and finance ministries, among others. What are the specific roles, functions and objectives of these institutions? How do they wield power? In whose interest do they operate? Who leads them?
– State Power: The institutions that make up the world of financial diplomacy and governance rely principally upon state power for legitimacy and political might. Whether it’s a central bank, a finance ministry, the IMF or other agencies, the role of powerful nation states such as the United States and other rich nations is central to the system and structures of the global Empire of Economics. The centrality of state power is made all the more apparent through an examination of the origins and evolution of less formal groupings of nations, such as the Group of Seven (G7), the Group of Five (G5), the Group of Ten (G10) and the Group of Twenty (G20), the principal political forums for the system of global governance and empire. Who attends these forums? What institutions are represented? What are the ideologies and competing interests? What effect do they have? What is the role of the ’emerging market’ nations of China, Russia, Brazil, India, Turkey and South Africa within this system?
– The Global Financial Mafia: What is the relationship and interaction between state power, the various Groups of nations, international institutions, finance ministries and central banks with the global cartel of banks and corporations, and the oligarchs and family dynasties that control the cartel? In what forums do the individuals who lead these various institutions interact, cooperate, communicate, socialize and organize? At various global and national think tanks, foundations, forums, conferences and social events, politicians, finance ministers, central bankers and top technocrats meet, often in secret, with the heads of banks and corporations, patriarchs and matriarchs of powerful family dynasties and other oligarchs. Among such events and forums are: the Bilderberg Group, International Monetary Conference (IMC), World Economic Forum (WEF), the Trilateral Commission, the Institute of International Finance (IIF), and the Group of 30, among others. These forums and events provide political leaders and the heads of influential institutions with a private forum where they are able to have off-the-record, often secretive discussions on important issues of global importance to the populations of their respective nations and the planet as a whole. Collectively, this group, and the institutions which dominate it, compose the Global Mafiocracy: a global political, social and economic system dominated by relatively few nations and institutions that operate largely in the interests of a small, criminal cartel of banks and corporations, a global financial Mafia.
– Top-Down: These institutions, individuals and ideologies will be examined and discussed not as a dry, historical account, but in terms of telling a series of stories. I want to try to present this information and analysis in the same way in which it appeals most to me, a fantastic, interesting, often horrifying and shocking tale of intrigue, empire, power politics, petty tyrants, in-fighting, domination, destruction and empire. I want the people who lead and participate in this system to become as familiar to the reader as they are to me, to see an image and read stories about the personalities and complexities of those who rule and wield power. What emerges is a story, or series of stories, worthy of the the intrigue and interest in historical and fictional accounts of imperial families and ancient empires, of mythical worlds, fantasy tales and science fiction societies. Get a view of our world from the top-down.
– Bottom-Up: In parallel to the institutions, individuals and ideologies that dominate and shape our world from the top-down, there are also processes, people, protests and mass movements or revolutions that shape and re-create and re-imagine the world from the bottom up. While Europe’s finance ministers meet in secret, off the record conversations in distant castles located in Luxembourg, deciding the fate of Europe and its citizens, mass protests and demonstrations and riots take place on the streets of Athens, Madrid, Lisbon, Rome and Frankfurt, in which the populations oppose and reject the decisions being made in far-off places by largely unelected technocrats who do not serve their interests. What role do protests and popular movements have in shaping and changing the modern world? How do the dominant institutions and individuals view and respond to such events and processes? Do they fear the potential of the people? What is that potential, or what could it be? What is the bottom-up story of the Global Mafiocracy and Empire of Economics?
– A Series of Stories: History, its chief actors, institutions and evolution is best understood when told as a story, with characters that readers and observers can relate to, understand, find an interest in, to be intrigued and even horrified. It would seem that the best way to explain the overly and unnecessarily complicated world of economics and finance is to explain it not as one would read in a textbook or industry publication, nor reportage in the financial press, nor through the dry and deceptively dull language and rhetoric of economics, academics, finance ministers, central bankers, technocrats and politicians. No, this is a world best understood through the stories, characters, challenges, triumphs, disasters and wars waged by the personalities and people who have shaped and changed this world. A system of human ‘civilization’ is, after all, ultimately a product of humans, and is, therefore, as deeply flawed, complex, conflicted and intriguing as are most human tales of the rise and fall of kings, queens, emperors, dictators, or the triumphs and tribulations of the ‘common person’, those on the streets, in the schools, bustling around the cities, towns and in the urban slums. Human beings understand human struggles and human stories. Thus, this book is not a history of economics and finance, it is a story of human beings, struggle, suffering, success and complexity. In short, it is a story like any other.
I need your help to write these stories and complete this book, what will be the first in a series. For now, my objective is to write a sample chapter, drawing from the many thousands of pages of research I have done in recent months and years. This chapter would be made available online for all to read, to truly gain a better understanding of the focus, approach and objectives of this book. To do this, I need your help. If this is something you would be interested in reading, please consider donating or sharing and promoting this through social media and other avenues.
My objective is to raise $500 in the short-term. If that goal is reached, the sample chapter will be completed (in rough form) and published online for all to read in April of 2015.
Thank you very much for all the support and encouragement.
Andrew Gavin Marshall
Austerity Revisited: How Global Financiers Rigged the Bank Bailouts of the 1980s
By: Andrew Gavin Marshall
Originally posted at Occupy.com
20 May 2014
In the first part of this Global Power Project series, I examined the origins and early evolution of the International Monetary Conference, an annual meeting (to be held June 1-3 in Munich) of several hundred of the world’s most influential bankers who gather in secrecy with the finance ministers, regulators and central bankers of the world’s most powerful nations. The second part looked at the role of the IMC in the lead-up to the 1980s debt crisis. Now, in Part 3, we examine the role the IMC played throughout that debt crisis which began in August of 1982.
At the 1982 International Monetary Conference, bankers noted that they had been cutting back extensively on loans to developing countries, with some leading bankers warning that the lending cut-backs could result in “aggravating the problems of countries already in economic difficulties and threatening to throw them into default” – which is exactly what happened a couple of months after that’s year’s conference.
A. W. Clausen, former CEO of Bank of America, spoke at the IMC in 1982 as then-president of the World Bank, and told the assembled bankers it was “an honour to be the first President of the World Bank to address the International Monetary Conference,” noting that, “themes of partnership and interdependence have repeatedly been at the center of our IMC meetings.” It was the subject Clausen wanted to address, “the tightening interdependence between the developed and the developing nations,” announcing “a new era of partnership between the World Bank and international commercial banks for helping the economies of the developing countries.”
Clausen told the bankers that “in order to develop a closer partnership with you, we intend to expand the International Finance Corporation [the investment arm of the World Bank] to explore the possibility of a multilateral insurance scheme for private investment, and to develop new mechanisms for attracting commercial bank co-financing.”
He also noted that the “fundamental objective of the World Bank” was “to help raise the standard of living of people, especially poor people, in the developing countries,” and argued that “people in developing countries will benefit from a closer partnership between the World Bank and international commercial banks.” Clausen was speaking roughly three months before Mexico announced its debt repayment problems, sparking the debt crisis, though he acknowledged that the developing world was experiencing a “balance-of-payments disequilibrium and debt-servicing difficulties.”
In addition, Clausen noted that the affiliate organization of the World Bank, the International Finance Corporation, had a special purpose which was “to encourage productive private enterprises in developing nations” whose loans do not have to be guaranteed by governments, and which can take equity (or shareholdings) in corporations. Clausen noted that together with the IMF and the General Agreement of Tariffs and Trade (GATT), the World Bank “has helped to build an interdependent global economy,” adding: “International commercial banking depends on the relatively integrated, dynamic, and peaceful world economy that these official institutions have nurtured.”
Thus, he suggested, “we should now develop the complementarity between the World Bank and international commercial banks into a closer relationship of collaboration,” and recommended “greater collaboration between [the] IFC and commercial banks,” which “has great potential for stimulating commercial investment in the developing countries.” All of the initiatives Clausen proposed revolved around the basic objective of increasing “the collaboration of the international banking community” with the World Bank, in order “to assist poor nations to better manage their economies through the establishment of economic policies that are conducive to economic growth and development” and thus “bringing them fully into the global economy.”
The Debt Crisis
In the first full year of the international debt crisis that tore Latin America and other developing countries into financial ruin – with entire populations pushed overnight into poverty through austerity measures that were demanded by the IMF and the global banks, in return for additional loans and debt rescheduling – the more than 200 global bankers at the International Monetary Conference met in Belgium where they were “treated like royalty,” met at the airport by “special hostesses” and were then chauffeured in Mercedes limousines to the Hyatt Regency Hotel.
The bankers attended a cocktail party at the Palais d’Egmont and hosted the King of Belgium for an afternoon lunch. It was in this “fairy-tale atmosphere,” as the New York Times described it, that the world’s top bankers met with government officials and central bankers and enjoyed “the luxury of thinking about the grand problems of world finance, unfettered by the real world’s concerns.”
The bankers at the 1983 conference agreed that the major debtor countries, in particular Brazil and Mexico, would need time to reshape their economies, with estimates ranging from three to seven or eight years of austerity, and various “structural reforms” designed to enforce neoliberal economic policies upon those entire populations. James Wolfensohn, a former partner at Salomon Brothers who started his own consultancy (and later went on to become President of the World Bank), delivered a popular speech at the IMC recommending that there could be no one solution to the debt crisis, but that each country would have to be handled on a case-by-case basis.
The banker William S. Ogden, a former vice chairman of Chase Manhattan, presented another popular speech at the IMC in which he explained that what was needed to resolve the debt crisis was “sustained world economic growth, avoidance of protectionism, increased government aid to the third world and more disciplined economic policies among the developing countries.” In other words, harsh austerity measures.
That very same year, Ogden was in the midst of creating a unique organization of international banks and bankers to represent their collective interests as a global community in the face of the debt crisis. That organization came to be known as the Institute of International Finance, itself the subject of a previous set of exposés in the Global Power Project.
At the 1984 meeting of the International Monetary Conference (IMC), a special meeting occurred among some of the top banks that held a large percentage of Mexico’s debt. They participated in a “closed meeting” with major central bankers and finance officials, including representatives of the IMF, who recommended that the banks lower their interest rates on loans to Mexico in order to reduce pressure on the country. Walter B. Wriston, chairman of Citicorp, who had previously opposed any concessions to the impoverished nations in crisis, at this point appeared willing to adhere to some reductions in interest rates for Mexico.
The closed meeting was also attended by Willard C. Butcher, Jr., the chairman of Chase Manhattan; John F. McGillicuddy, chairman of Manufacturers Hanover Trust Company; Lewis T. Preston, chairman of J.P. Morgan & Company; Walter V. Shipley, chairman of Chemical Bank; Wilfried Guth, managing director of Deutsche Bank; Guido R. Hanselmann, executive board member of Union Bank of Switzerland (UBS), and Sir Jeremy Morse, chairman of Lloyds Bank of London.
The following day, the international banks announced that they would agree to negotiate a long-term debt solution for Mexico. Included in the decision as well was the IMF managing director, Jacques de Larosiere; the chairman of the Federal Reserve, Paul Volcker; and a special representative of the banks, Citibank Vice Chairman William R. Rhodes, who announced the decision to negotiate on behalf of the banks and who was personally responsible for chairing multiple “bank advisory committees” that negotiated debt rescheduling with various countries in Latin America.
Three years later, in 1987, Mexico was still caught in a painful crisis and the world’s bankers were still meeting for the IMC in luxurious surroundings, partaking in opulent social events to discuss the issue of world debt problems. The more than 200 bankers at the meeting expressed their frustration with the problems of the global monetary system, the instability of the floating exchange rate system, and currency crises. William Butcher, that year’s chairman of the IMC, warned that the global monetary system would not “correct itself” and instead the search for a new and more stable system “must be intensified.”
The most popular speech at the IMC that year was delivered by Japan’s vice minister of finance for international affairs, Toyoo Gyohten, who proposed the establishment of “some international mechanism” which would be responsible for managing international monetary crises, and would be required “to have at least several hundred billion dollars in order to influence the financial markets.”
At the next year’s meeting of the IMC, then-Chairman of the Federal Reserve, Alan Greenspan, spoke to the assembled bankers, explaining that further declines in the U.S. Dollar would not help American exports. His comments led to a rise in the Dollar, “greeted positively in the financial markets,” and stock and bond prices rose on Wall Street. The heads of the central banks of other major industrial nations, such as West Germany and Britain, were also present at the conference where collectively the central bankers “reiterated the need to keep inflation down as a way to continue worldwide economic growth” – a position met with great approval by the bankers present at the meeting.
At the 1989 meeting of the IMC, many of Mexico’s largest international lenders attended a special meeting after which they announced a $5.5 billion “aid” package (aka bailout) for Mexico in cooperation between Japanese banks, the IMF and the World Bank. But the so-called “aid packages” handed out by Western banks and international organizations to the crisis-hit developing nations were, in fact, bailouts for the major banks: the funds were given to the countries explicitly to pay the interest that they owed to the banks, while at the same time forcing those governments to implement strict austerity measures and other economic reforms.
William R. Rhodes, Citibank’s main official responsible for debt rescheduling agreements, was present at the meeting, which was also attended by Angel Gurria, the chief debt negotiator for Mexico. Rhodes stated that the meeting at the IMC “set the stage for rapid progress.” In the final part of the Global Power Project series on the International Monetary Conference, I examine the continued relevance of the IMC from 1989 to the present – including the bankers who composed its leadership, as well as a review of leaked documents pertaining to the 2013 meeting of the IMC in Shanghai.
Andrew Gavin Marshall is a 27-year-old researcher and writer based in Montreal, Canada. He is project manager of The People’s Book Project, chair of the geopolitics division of The Hampton Institute, research director for Occupy.com’s Global Power Project and the World of Resistance (WoR) Report, and hosts a weekly podcast show with BoilingFrogsPost.
Global Power Project: The Group of Thirty, Financial Crisis Kingpins
By: Andrew Gavin Marshall
25 February 2014
The following article was originally posted on 18 December 2013 at Occupy.com
Following parts one, two and three of the Global Power Project’s Group of Thirty series, this fourth and final instalment focuses on a few of the G30 members who have played outsized roles both in creating and managing various financial crises, providing a window on to the ideas, institutions and individuals who help steer this powerful global group.
The Assassin of Argentina
Prior to 2008, one of the most notable examples of a highly destructive financial crisis took place in Argentina which, heavily in debt, faced a large default and was brutally punished by financial markets and the speculative assault of global finance, otherwise known as “capital flight.” Less known in the story of Argentina’s 1998 to 2002 economic catastrophe was the significant role played by just one man: Domingo Cavallo.
A longtime member of the Group of Thirty, Cavallo formerly served both as Governor of the Central Bank and Minister of Economy in Argentina. He has been referred to by Pulitzer Prize-winning economic researcher Daniel Yergin as “one of the most influential figures in recasting the relationship of state and marketplace in Latin America.”
Between 1976 and 1983, Argentina, ruled by a ruthless military dictatorship, was marred by excessive human rights abuses and persecution of intellectuals and dissidents during the so-called “Dirty War” in which as many as 30,000 people were killed or disappeared . The terror was reminiscent of nearby Chile, where a coup that brought dictator Augusto Pinochet to power in 1973, with the help of the CIA, provided a petri-dish experiment in the implementation of neoliberal “reforms.” It was Chile’s dictatorship that set the example, and Argentina’s soon followed.
In a 2002 interview, Domingo Cavallo noted that, “The experience of Chile during the ’80s was very instructive, I think, for most Latin American economies, and many politicians in Latin America, because Chile was successful by opening up and trying to expand their exports and in general their foreign trade and getting more integrated into the world economy… And of course we used, particularly here in Argentina, the experience of Chile to go ahead with our own reforms.”
Asked about the association between economic “reforms” in Chile and the ruthless dictatorship that implemented them, Cavallo explained, “There were discussions on the feasibility of implementing market reforms in a democracy. But in 1990… the first democratic president after Pinochet maintained the reforms and also tried to improve on them [and] it was demonstrated that itwould be possible to implement similar reforms under a democratic regime.”
What specific reforms was Cavallo referring to? Under Argentina’s military dictatorship, Cavallo served for one year as Governor of the Central Bank in 1982, where he was responsible for implementing a state bailout of corporations and banks. After, Cavallo returned to academic life. But all that changed with the election of Carlos Menem in 1989, who served as president until 1999. In 1991, Menem appointed Cavallo as Minister for Economy, a position he held until 1996.
Cavallo led the neoliberal restructuring of Argentina: pegging the Argentine peso to the U.S. dollar, trying to reduce inflation, undertaking massive privatizations while opening up the economy to “free trade,” and deregulating financial markets. The New York Times in 1996 heaped praise on Cavallo for his “constructive” role in leading the economy “back to vitality and international respectability,” despite the fact that his reforms “brought high unemployment and painful reductions in social programs.”
Another NYT article credited Cavallo for the “stability” brought to Argentina through his “economic miracle,” while noting, without irony, that Cavallo’s miracle had “left million of Argentines… without a safety net” and with record-high unemployment, the emergence of urban slums, abandoned street children, over-crowded food banks, homeless shelters in churches, and even some people who were forced to eat cats in desperation. The “miracle” was so great, in fact, that despite all of the so-called stability it facilitated, President Menem ultimately dismissed Cavallo to the jubilation of tens of thousands of protesters in the streets. Though the people were pleased, financial markets expressed their disapproval .
With multiple economic and financial crises erupting around the world and in neighboring nations, Argentina, which pegged its currency to the U.S. dollar, found it could no longer compete. The touted neoliberal reforms were taking a toll as the country plunged into recession. Menem was replaced in 1999 by President Fernando De la Rua, who quickly sought support from the IMF to help repay the country’s debts owed to foreign – largely American – banks.
But Cavallo wasn’t out. In 2001, he was re-appointed as the country’s Minister of Economy just in time to receive emergency powers enabling him handle the country’s ongoing financial crisis that he helped to create . At that point, financial markets felt Argentina could not be trusted to repay its debt and the IMF refused to provide further loans, on the basis that the country had not implemented enough neoliberal reforms to meet its demands. The economy crashed and the “much-hated” Cavallo had to resign, as did the President, who fled by helicopter from the Casa Rosada as Argentines protested en masse .
Even the Federal Reserve Bank of San Francisco noted in 2002 that there was “some truth” to the view that “Argentina’s debt position would have been sustainable if only market uncertainty had not triggered a crisis.” But, it added, had Argentina made the effort asked of it to reduce its debt, it could have avoided “potentially destabilizing shifts in market sentiment.”
The role played by former Federal Reserve Chairman Alan Greenspan in creating the conditions that led to the 2008 global financial meltdown is known to many. What is less known is that Greenspan, too, is a former member of the Group of Thirty. Greenspan did not work alone, of course, in his efforts to deregulate the financial system and spur the growth of the derivatives markets, which laid the groundwork for the worst financial crisis in modern times. Larry Summers, who then served as deputy secretary and later Secretary of Treasury under Bill Clinton, was also very helpful in this regard. Summers, too, is a current member of the Group of Thirty.
Currently serving as President Emeritus and as a professor at Harvard University, Summers was the former director of President Obama’s National Economic Council from 2009 to 2011. Previously, he was President of Harvard (2001 to 2009) and, prior to his positions during the Clinton administration he was Chief Economist at the World Bank (1991 to 1993). Currently, Summers is a member not only of the G30 but of the Council on Foreign Relations, the Trilateral Commission, and he was also a member of the Steering Committee of the Bilderberg Group.
While Chief Economist at the World Bank, Summers signed an infamous 1991 memo in which it was suggested that rich countries should dump their toxic waste and pollutants in the poorest African nations — because by the time the toxins spurred the growth of cancer in the local population, they would already statistically be dead due to already high mortality rates. The memo noted : “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.”
When Summers later went to work for the Clinton administration under Treasury Secretary Robert Rubin, he along with Rubin and Fed Chairman Greenspan formed the “Three Marketeers,” as Time referred to them, dedicated to “inventing a 21st century financial system” where they placed their “faith [in] financial markets.”
In the final two years of the Clinton presidency, Summers served as the Treasury Secretary alongside his deputy and protégé, Timothy Geithner, another member of the G30 who would go on to make a mark on the financial crisis — largely by convincing President Obama to bail out the Wall Street banks that crashed the economy, with zero penalty to them. Under the Obama administration, Summers served for nearly two years as Chair of the National Economic Council and was a highly influential policymaker . In 2009, he had spoken at the highly influential ultra-conservative think tank, the Peterson Institute for International Economics, where he explained the administration’s approach to the economic recovery, noting that , “Our approach sought to go as much as possible with the grain of the market” as opposed to regulating markets.
When Summers left the Obama administration in late 2010, he returned to Wall Street and made a fortune working for the hedge fund D. E. Shaw & Co. and Citigroup. This past summer, he was considered Obama’s favorite pick to replace Ben Bernanke as Fed Chairman, but faced such stiff opposition within the Democratic Party that he withdrew his name, leaving Janet Yellen – the Vice Chair of the Fed and herself a former member of the Group of Thirty – to step in .
What we see, in this analysis of the Group of Thirty, are the connections between those in positions of power to respond to and manage economic and financial crises, and those in positions of power who created such crises. Naturally, as well, the G30’s membership includes numerous bankers who, as fortune had it, shared handsomely in the profits of those crises. Put simply, the G30 can be thought above all as an exclusive club of financial crisis kingpins. And it is a club, no doubt, that will continue to play a significant and not altogether helpful role in global financial management for years to come — or until something is done to stop them.
Andrew Gavin Marshall is a 26-year-old researcher and writer based in Montreal, Canada. He is project manager of The People’s Book Project , chair of the geopolitics division of The Hampton Institute, research director for Occupy.com’s Global Power Project and the World of Resistance (WoR) Report, and hosts a weekly podcast show with BoilingFrogsPost .