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This lucid and original account of where our money comes from explains why most people and businesses are so heavily in debt. Exploding more myths than any other book this century, it's all about subjects very close to home: mortgages, building societies and banks, food and farming, transport, worldwide poverty, and what's on the supermarket shelf.
· why virtually all the money in the world economy has been created as a debt; why only 3% of UK money exists as 'legal tender'; and why in a world reliant upon money created as debt, we are kept perpetually short of money.
· how and why mortgages are responsible for almost two-thirds of the total money stock in the UK, and 80% in the US.
· why business and corporate debt is at its highest level ever.
· why debts mean that a small farm can be productively very efficient, but financially not 'viable'.
· why national debts can never be paid off without monetary reform.
· how debt fuels the 'need to grow', revolutionising national and global transport strategies, destroying local markets and producers and increasing waste, pollution and resource consumption.
· how 'Third World debt' is a mechanism used by the developed nations to inject ever-increasing amounts of money into their own economies, and why debtor nations can never repay the debts.
· why politicians who rely on the banks for money can't fund public services.
· why 'debt-money' is undemocratic and a threat to human rights.
The author proposes a new mechanism for the supply of money, creating a supportive financial environment and a decreasing reliance on debt.
Michael Rowbotham is a teacher and writer. £15 pbk 352pp 1 897766 40 8
"Forget everything you thought you knew about money. In terms the lay person can understand, myth buster Rowbotham fearlessly reveals deeply disturbing truths about our debt-based money system that befuddle bankers, economists, and politicians. An essential self-education tool for anyone interested in creating a world that works, pushing the issues further and posing the implications more bluntly than I have seen anywhere else."
David C. Korten, author, When Corporations Rule the World, and board chair, The Positive Futures Network
"A trenchant analysis of the current arrangements for credit creation, a powerful indictment of their baleful consequences, and a persuasive case for reform."
Prof. Bryan Gould, Vice-Chancellor, University of Waikato
"As a result of fractional reserve banking over 90% of our money supply is loaned into existence by commercial banks and thus must grow by enough to at least pay the interest on the loan by which it was created. This gives a basic growth bias to the economy. Fractional reserve banking also transfers to private hands the state's traditional right to issue money, and does so in a way that increases the cyclical instability of the economy. The corrective call for 100% reserve requirements has been made periodically not only by so-called 'monetary cranks', but also by economists of impeccable reputation such as Frank Knight and Irving Fisher. Michael Rowbotham's forceful discussion is a welcome revival of an issue that has been too long dormant."
Prof. Herman E. Daly
"An incisive and readable book: it opens up in a very fresh way what money is and how it works (and doesn't work)."
Rt Rev Peter Selby, Bishop of Worcester
· the financial crisis in south-east Asia is due, not to poor economic management, but to the reliance of the world's economies on banking, which is an inherently unstable mechanism.
· most people in developed countries are up to their necks in debt, chiefly due to the system of buying homes with mortgages. But this system is itself entirely illegitimate: governments use the mortgage system as a privatised means of creating money, highly profitable for the banks and lending corporations but crippling for the borrower.
· the refusal to fund adequate public services governments say "We haven't got the money" is down to a refusal by governments to create and supply money themselves according to need. Instead, they entrust the supply of money to banks, who only create money as a debt where interest can be charged on it. Virtually all money is thus created as a debt, purely as a profit-making exercise. But this is a choice made by government.
· all Third World debt should be repudiated. As this book shows, most such debts were and are created by the institutions of the developed countries as a mechanism for injecting more money into their own economies. They were never intended to finance the underdeveloped world or relieve poverty, and they don't.
· the UK government is cutting expenditure in order to reduce the national debt. Yet national debts can never be repaid. In any case the UK debt and annual deficit is far lower than in many economically successful European countries. So why will the government not stop this charade and pay better welfare and health benefits and fund education properly?
All in all, a crippling attack on the popular assumptions surrounding economics, money and borrowing, and the relationship between the rich Northern world and the poor South.
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Jon Carpenter's complete catalogue: www.ruralpen.demon.co.uk
Department of Economics, University of Ottawa,
Monday, 12 January 1998
Since the onslaught of the debt crisis in the early 1980s, the IMF has played a central role in exchange rate policy often requiring indebted Third World countries to devalue their currency by 50 percent as a "pre-condition" for the subsequent negotiation of a loan agreement. IMF-sponsored currency devaluations have invariably resulted in abrupt price hikes and a dramatic compression of real earnings.
What is distinct in the cases of Korea, Indonesia and Thailand is that the devaluation (which preceded the bail-out agreement and the imposition of sweeping macro-economic reforms) had not been explicitly demanded by the Washington-based bureaucracy. Rather it was the result of speculative pressures on currency markets exerted by the large merchant banks and financial institutions (through the use of a variety of speculative instruments).
In the context of the Asian financial crisis, "institutional speculators" (rather than the IMF) have come to play an indirect role in the process of macro-economic reform. In other words, international banking and financial institutions have (in a de facto sense) dictated country-level foreign exchange policy, -- ie. through the deliberate manipulation of currency markets. In this context, "institutional speculators" are involved in "setting the stage" for the subsequent IMF bail-out operation. They are also involved in routine consultations with the Bretton Woods institutions pertaining to the various components of the macro-economic reform package included in the bail-out agreements (eg. the deregulation of Korea's financial sector and the opening up of Seoul's bond market to foreign capital).
In turn, the same Western and Japanese financial and banking institutions (routinely involved in currency and stock market speculation) are the creditors of Asia's central banks. They also hold large amounts of short term debt and have, therefore, a vested interest in averting loan default by Asian financial institutions. Not surprisingly, these same Western and Japanese financial institutions have pressured G7 governments to implement the bail-out operations of which they are the ultimate beneficiaries, -- ie. the 57 billion dollars under the IMF- sponsored agreement with the Seoul government will be used to reimburse Korea's creditors.
How will these multi-billion dollars operations be financed? The contribution of the Bretton Woods institutions and the Asian Development Bank (ADB) constitutes but a fraction of the total. The largest contributions to the bail-outs are from G7 governments, requiring the issuing of vast amounts of public debt.
In other words, G7 governments have come to the rescue of the merchant and commercial banks by accepting to finance the bail-out, yet to undertake this objective, G7 national treasuries are obliged to issue large amounts of public debt which is invariably underwritten by the large merchant banks. In other words, the "beneficiaries" of the bail-out are also the underwriters of the public debt operation required to finance the bail-out. An absurd situation: G7 governments are "financing their own indebtedness"...
While the bail-outs are conducive to the building up of public debts (in both the Asian and G7 countries) -- thereby reinforcing the stranglehold of the creditors over the conduct of economic policy -- tens of billions of dollars of public money are transferred into the hands of private financial institutions leading to an unprecedented accumulation of private wealth. In turn, the macro-economic reforms imposed in the context of the IMF-sponsored bail-outs are conducive to a dramatic collapse of the real economy leading to the impoverishment of millions of people.
Copyright by Michel Chossudovsky, Ottawa 1997. All rights reserved.
DESTROYING NATIONAL CURRENCIES
By Michel Chossudovsky
Professor of Economics, University of Ottawa, author of "The Globalisation of Poverty, Impacts of IMF and World Bank Reforms, Third World Network, Penang and Zed Books, London, 1997. He is also the author of "Dismantling Yugoslavia, Colonizing Bosnia," Covert Action Quarterly (CAQ), Washington, D.C., Number 56, Spring 1996 and "The Business of Crimes and the Crimes of Business: Globalization and the Criminalization of Economic Activity," CAQ, Number 58, Fall 1996. The author can be contacted at firstname.lastname@example.org
Alternative fax: 1-613-562-5999
- Monday, 12 January 1998 -
The current round of massive bailouts in East Asia -- South Korea, Indonesia, and Thailand -- has focused unusual attention on the International Monetary Fund (IMF). Apparently believing that legislators will now see the IMF as indispensable, the Clinton Administration has chosen this moment to request $18 billion for it, but they have probably been surprised by the resistance from legislators across the political spectrum. This is a critical opportunity to block or heavily condition funding for the agency most responsible for designing and managing the globalized economy -- an opportunity that many groups seeking to combat the IMF's impact on the poor, the environment, and labor have long been waiting for.
The IMF is the lender of last resort for countries with debt and other financial problems, and it uses its power to impose strict conditions on countries in exchange for its loans. These economic policy packages, usually called "structural adjustment programs" (SAPs) have been imposed on over 90 countries around the world, including most of Latin America, South Asia, and Africa. Other agencies like the World Bank also require SAPs, but it is the IMF which sets the pace. The conditions on the bailout loans being made to the East Asia governments closely resemble those of standard SAPs.
One of the main components of structural adjustment programs is the requirement that labor policies be made more "flexible." This obnoxious euphemism masks the fact that IMF bureaucrats practically dictate to governments around the world the policies that erode legitimate protections for workers and union organizers and encourage neglect of minimum wage laws. Countries that sign with the IMF usually experience massive layoffs in short order. South Korea is now bracing for a million layoffs, just as about two million Mexicans lost their jobs in the wake of the IMF-led bailout of 1995.
In tandem with its philosophy on labor laws, the IMF also makes the rules that foster the growth of free-trade zones (and maquila sectors) around the world. They do this by pressuring governments to lower barriers to outside investment and to eliminate rules limiting the ability of corporations to move their profits out of the country.
Now that IMF economics have been demonstrated so vividly in East Asia (which got into trouble partly because of such policies), we can strike a real blow against this pro-corporate, anti-worker regime promoted around the world by the IMF.
The $18 billion appropriation President Clinton seeks will probably come up soon after Congress starts its new session at the end of January. It is likely to be introduced as part of a "budget supplemental" attached to an unrelated, high-profile bill such as the one to extend U.S. troops' presence in Bosnia. In this way, the Administration would hope to prevent an open debate on this obscure but very powerful institution.
It is vital that we prevent Clinton from "fast-tracking" IMF funding in this way. The stakes are high: if we succeed, we will have created significant momentum for heavily conditioning, or even eliminating, U.S. support for the institution most responsible for imposing poverty policies around the world. If we fail, we may have lost any opportunity to have a real impact on IMF policies for at least the next three years.
The first step is to contact legislators and urge them to reject President Clinton's attempt to "fast-track" IMF funding through an attachment to an unrelated bill. Let the IMF, which imposes harsh policies on countries from South Korea to Zimbabwe to Nicaragua in a profoundly undemocratic manner, be exposed to the full light of the democratic process in the U.S., its biggest contributor and most powerful member. Legislators should commit themselves to insuring that IMF funding goes through the normal appropriations process, with full and open public hearings every step of the way.
The effort to block or heavily condition IMF funding will not stop with this "fast-track" maneuver. The 50 Years is Enough Network is preparing a longer analysis that should be available next week (week of January 19). We also have a sample op-ed piece and other materials in the works. It is vital that we wage this first battle NOW, but the overall campaign is just getting underway.
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