Never before has so much debt been imposed on so many people
by so few financial operatives -- operatives who work from Wall Street, the
largest casino in history, and a handful of its junior counterparts around the
world, especially Europe.
External sovereign debt, as well as occasional default on
such debt, is not unprecedented . What is unique in the case of the current
global sovereign debt is that it is largely private debt billed as public debt;
that is, debt that was accumulated by financial speculators and, then,
offloaded onto governments to be paid by taxpayers as national debt. Having
thus bailed out the insolvent banksters, many governments have now become
insolvent or nearly insolvent themselves, and are asking the public to skimp on
their bread and butter in order to service the debt that is not their
After transferring trillions of dollars of bad debt or toxic
assets from the books of financial speculators to those of governments, global
financial moguls, their representatives in the state apparatus and corporate
media are now blaming social spending (in effect, the people) as responsible for
debt and deficit!
President Obama�s recent motto of �fiscal responsibility�
and his frequent grumbles about �out of control government spending� are
reflections of this insidious strategy of blaming victims for the crimes of
perpetrators. They also reflect the fact that the powerful financial interests
that received trillions of taxpayers� dollars, which saved them from
bankruptcy, are now dictating debt-collecting strategies through which
governments can recoup those dollars from taxpayers. In effect, governments and
multilateral institutions, such as the IMF, are acting as bailiffs or tax
collectors on behalf of banksters and other financial wizards.
Not only is this unfair (it is, indeed, tantamount to
robbery, and therefore criminal), it is also recessionary as it can increase
unemployment and undermine economic growth. It is reminiscent of President
Herbert Hoover�s notorious economic policy of cutting spending during a
recession, a contractionary fiscal policy that is bound to worsen the recession.
It is, indeed, a recipe for a vicious circle of debt and depression: as
spending is cut to pay debt, the economy and (therefore) tax revenues will
shrink, which would then increase debt and deficit, and call for more spending
Spending on national infrastructure, both physical (such as
roads and schools) and social infrastructure (such as health and education) is
key to the long-term socioeconomic developments. Cutting public spending to pay
for the sins of Wall Street gamblers is bound to undermine the long-term health
of a society in terms of productivity enhancement and sustained growth.
But the powerful financial interests and their debt
collectors seem to be more interested in collecting debt claims than investing
in economic recovery, job creation or long-term socioeconomic development. Like
most debt-collecting agencies, the IMF and the states serving as banksters�
bailiffs through their austerity programs may shed a few crocodile tears in
sympathy with the victims� of their belt-tightening policies, but, again like
any other debt-collecting agents, they seem to be saying: �sorry for the loss
of your job or your house, but debt must be collected -- regardless!�
A most outrageous aspect of the debt burden that is placed
on the taxpayers� shoulders since 2008 is that most of the underlying debt
claims are fictitious and illegitimate: they are largely due to manipulated
asset price bubbles, dubious or illegal financial speculations, and scandalous
conversion of financial gamblers� losses into public liability.
As noted earlier, onerous austerity measures to force the
public to pay the largely fraudulent external debt is not new. Benignly calling
such oppressive measures �structural adjustment programs,� the International
Monetary Fund and the World Bank have for decades imposed them on many less
developed countries to collect debt on behalf of international financial
To �help� the indebted nations craft debt-servicing
arrangements with external creditors, the IMF imposed severe conditions on the
way they managed their economies -- just as it is now imposing (in
collaboration with the European and American bankers) those austerity policies
on the debtor nations in Europe. The primary purpose of such restrictive
conditions is to divert or transfer national resources from domestic use to
external creditors. These include not only belt-tightening measures to cut
social spending and/or raise taxes, but also selling-off public enterprises,
national industries, and future tax revenues.
Calling such fire-sale privatization deals �briberization,�
the ex-World Bank chief economist Joseph Stiglitz revealed (in an interview
with the renowned investigative reporter Greg Palast) how finance ministers and
other bureaucratic authorities in the debtor countries often carried out the bank�s
demand to sell off their electricity, water, transportation and communication
companies in return for some apparently irresistible sweetener. "You could
see their eyes widen" at the prospect of 10 percent commissions paid to Swiss
bank accounts for simply shaving a few billions off the sale price of national
The IMF/World Bank/WTO �structural adjustment programs� also
include neoliberal policies of �capital-market liberalization.� In theory,
capital market deregulation is supposed to lead to the inflow and investment of
foreign capital, thereby bringing about industrialization, job creation and
economic expansion. In practice, however, financial liberalization often leads
to more capital outflow (or capital flight) than inflow. To the extent that
there is an inflow of capital, it is not so much productive or industrial
capital as it is unproductive or speculative capital (also known as �hot
money�): massive amounts of capital that is constantly in transit across international
borders in pursuit of real estate, currency, or interest rate speculation.
To attract foreign capital to the relatively vulnerable
markets of debtor nations, the IMF frequently recommends drastic increases in
interest rate. Higher interest rates are, however, both anti-developmental and
detrimental to the goal of debt servicing. Higher interest rates tend to
destroy property values, divert financial resources away from productive
investment, and increase the burden of debt servicing.
For example, in the Philippines, which in 1980 adopted
the IMF�s structural adjustment program, �Interest payments as a percentage of
total government expenditures went from 7 percent in 1980 to 28 percent in
1994. Capital expenditures, on the other hand, plunged from 26 percent to 16
percent.� By contrast, �the Philippines'
Southeast Asian neighbors ignored the IMF's prescriptions. They limited debt
servicing while ramping up government capital expenditures in support of
growth. Not surprisingly, they grew by 6 to 10 percent from 1985 to 1995 . . . while
barely grew and gained the reputation of a depressed market that repelled
A major condition of the IMF/World Bank/WTO�s �restructuring
program� is trade liberalization. Free trade has always been the bible of the
economically strong, self-righteously preached to the weak. It enables the
strong to use their market power for economic gains, thereby perpetuating an
international division of labor in which the technologically advanced countries
would specialize in the production and export of high-tech, high-value added
products while less developed countries would be condemned to the supply of
less- or un-processed products. It is not surprising, then, that such a
lopsided policy of trade liberalization is sometimes called �free trade
Taking advantage of the so-called Third
World debt crisis, the IMF, World Bank and WTO imposed free trade
and other �adjustment programs� on 70 developing countries in the course of the
1980s and 1990s. �Because of this trade liberalization,� points out Walden
Bello, member of the Philippines House of Representatives and president of the
Freedom from Debt Coalition, �gains in economic growth and poverty reduction
posted by developing countries in the 1960s and 1970s had disappeared by the
1980s and 1990s. In practically all structurally adjusted countries, trade
liberalization wiped out huge swathes of industry, and countries enjoying a
surplus in agricultural trade became deficit countries.� Bello further points out, �The number of poor
increased in Latin America and the Caribbean, Central and Eastern
Europe, the Arab states, and sub-Saharan Africa.�
By contrast, in China
and East Asia, where the neoliberal free trade
and other structural adjustment programs were rejected, significant economic
development and considerable poverty reduction took place .
The attitude of the international financial parasites and
their collection agencies, such as the IMF, regarding the disastrous
consequences of their �restructuring� conditions is instructive.
An IMF official was quoted as acknowledging that the fund's
austerity packages have often led to debt-collection without economic growth.
But he added: "the fund is a firefighter not a carpenter, and you cannot
expect the firefighter to rebuild the house as well as put out the fire."
Obviously, what the �firefighter� tries to save from burning are external debt
claims, not the economies or livelihoods of the indebted.
Another component of the IMF/World Bank�s �adjustment
program� to service external debt is called elimination of �price distortions,�
or establishment of �market-based pricing.� These are fancy, obfuscationist
terms for raising prices on essential needs such as food, water and utilities.
They also include elimination of subsidies on healthcare, education,
transportation, housing, and the like; as well as curtailment of wages and
benefits for the working class. In essence, these are roundabout ways of taxing
the poor to pay the rich, the creditors.
Where such belt-tightening measures have made living
conditions for the people intolerable, they have triggered what has come to be
known as �the IMF riots.� The IMF riots are �painfully predictable. When a
nation is, �down and out, [the IMF] takes advantage and squeezes the last pound
of blood out of them. They turn up the heat until, finally, the whole cauldron
blows up,� as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in
1998. Indonesia exploded into riots . . .� . Other examples of the IMF riots
include the Bolivian riots over the rise in water prices and the riots in Ecuador over
the rise in cooking gas prices. As the IMF/World Bank riots create an insecure
or uncertain economic environment, they often lead to a vicious circle of
capital flight, deindustrialization, unemployment, and socio-economic
Only when the riots have tended to lead to revolutions, the
parasitic mega banks and their debt-collecting bailiffs, the IMF and/or the
World Bank, have been forced to accept less onerous debt-servicing conditions,
or even debt repudiation. The Argentine people deserve credit for having set a
good example of this kind of debt restructuring.
In late 2001 and early 2002, they took to the streets to
protest the escalated austerity measures imposed on them at the behest of the
IMF and the World Bank. �Political
demonstrations and the looting of grocery stores quickly spread across the
country. . . . The government declared a state of siege, but police often stood
by and watched the looting �with their hands behind their backs.� There was
little the government could do. Within a day after the demonstrations began,
principal economic minister Domingo Cavallo had resigned; a few days later,
President Fernando de la Rua stepped down. . . . In the wake of the
resignations, a hastily assembled interim government immediately defaulted on
$155 billion of Argentina's foreign debt, the largest debt default in history�
Argentina also freed
its currency (peso) from the US dollar (it had been pegged to dollar in 1991).
After defaulting on its external debt and dropping its currency peg to the
has enjoyed a most robust economic growth in the world. Debt restructuring a la
Argentina, that is, debt repudiation, is what today�s debt-strapped nations in
Europe and elsewhere need to do to free themselves from the shackles of debt
Having subjected many nations in the less-developed countries
of the South to their notorious austerity measures, international knights of
finance are now busy applying those impoverishing measures to the more
developed countries of the North, especially those of Europe. For example, the
Greek government has in recent months announced a series of wage and benefit
cuts for public workers, a three-year freeze on pensions and a second increase
this year in sales taxes, as well as in the price of fuel, alcohol and tobacco
in return for a bailout plan promised by the IMF and the European Central Bank.
Debt collectors� austerity requirements in a number of East
European countries (such as Latvia and Lithuania) have been even more
draconian. Thomas Landon, Jr., of The New
York Times recently reported that, threatened with bankruptcy, �Lithuania
cut public spending by 30 percent -- including slashing public sector wages 20
to 30 percent and reducing pensions by as much as 11 percent. . . . And the
government didn�t stop there. It raised taxes on a wide variety of goods, like
pharmaceutical products and alcohol. Corporate taxes rose to 20 percent, from
15 percent. The value-added tax rose to 21 percent, from 18 percent� (April 1, 2010).
As these oppressive measures led to the transfer of 9
percent of gross domestic product (euphemistically called �national savings�)
from domestic needs to debt collectors, they also further aggravated the
economic crisis: �Unemployment jumped to a high of 14 percent, from single
digits -- and an already wobbly economy shrank 15 percent last year� [Ibid.].
another victim of the predatory global finance, the recessionary consequences
of creditor-imposed austerity measures have been even more devastating: �Latvia has
experienced the worst two-year economic downturn on record, losing more than
25% of GDP. It is projected to shrink further during the first half of this
year. . . . With 22% unemployment . . . and cuts to education funding that will
cause long-term damage, the social costs of this trajectory are also high� .
While the debt crises of the weaker European economies such
as Greece, Latvia, Lithuania, Spain, Portugal and Ireland have reached critical
stages of sustainability, the relatively stronger economies of Germany, France,
and the UK are also in danger of debt and deficit crises. Indeed, according to
a recent IMF estimate, even in the more advanced economies of Europe the
debt-to-GDP ratio will soon rise to an average of 100 percent .
Of course, the United States is also burdened by a
mountain of debt that is fast approaching the size of its gross domestic
product (of nearly $13.5 trillion). A major difference between the United States
and other indebted nations is that the US is not as much at the mercy of
its creditors or the IMF as are other debtor nations. Therefore, it can
reasonably be argued that, on the basis of national or public interests, it
could embark on an expansive fiscal policy, that is, a more aggressive stimulus
package, that would take advantage of the power of �government as the employer
of last resort,� more or less as FDR did, thereby creating jobs, incomes and
economic growth. This would also add to government�s tax collection and reduce
its debt and deficit.
Judging by the record, as well the budgetary projections, of
the Obama administration and the lobby-infested Congress, however, such an
expansionary fiscal policy seems very unlikely. Not only has the bulk of the
government�s anti-recession assistance been devoted to the rescue of the Wall
Street gamblers, but also the relatively small stimulus spending has largely
been funneled into the pockets of the private/financial sector -- through
wasteful and ineffectual programs such as �cash for clunkers,� tax credit for
new homebuyers, tax incentives for employers to hire, and the like. This stands
in sharp contrast to what FDR did in the earlier years of the Great Depression:
creating jobs and incomes directly and immediately by the government itself.
Not only is the administration�s feeble stimulus package
soon coming to an end, but the government also recently imposed a three-year
spending freeze on all public outlays except for military spending and the
so-called entitlements. As their tax revenues, along with their traditional
shares of federal assistance, are dwindling many states (especially California, Florida, New York, Arizona,
Nevada and New Jersey) are facing
serious financial difficulties. And as they curtail or shut down essential
services at the libraries, museums, parks, schools, art centers, and hospitals,
and give pink slips to their employees, the recessionary conditions are bound
The wrenching economic hardship in the debt-ridden countries
is not so much due to insufficient or lack of resources as it is the result of
the lopsided and cruel distribution of those resources. It is increasingly
becoming clear that the working majority around the world face a common enemy:
an unproductive financial oligarchy that, like parasites, sucks the economic
blood out of the working people, simply by trading and/or betting on claims of
Rectification of this unsavory situation poses stark
alternatives: either the powerful financial interests, using the state power,
succeed in collecting their debt claims by impoverishing the public; or the
public will get tired of the vicious cycle of debt and depression, and will
rise in protest -- akin to the �IMF riots� in Argentina -- to repudiate the
largely fictitious and illegitimate debt. This is of course a class war. The
real question is when the working people and other victims of the unjust debt
burden will grasp the gravity of this challenge and rise to the critical task
of breaking free from the shackles of debt and depression.
While repudiation may cleanse the current toxic debt off the
economies of the indebted societies, it would not prevent its recurrence in the
future. To fend off such recurrences, it is also necessary to nationalize the
banks and other financial intermediaries. It only stands to reason that
national savings be placed under democratically controlled public management --
not unelected, profit-driven private banks.
 For a comprehensive account of the history of sovereign
debt crises and/or defaults see, for example, Carmen M. Reinhart and Kenneth S.
Rogoff, This Time is Different: Eight Centuries of Financial Folly. Princeton,
NJ: Princeton University
 Greg Palast, �The Globalizer Who Came In From the Cold,� gregpalast.com,
October 10, 2001.
 Walden Bello, �The Poverty Trip � Is
Corruption the Cause,� Counter Punch,
April 30 � May 2, 2010.
 Arthur McEwan, �Economic Debacle in Argentina -- The IMF
Strikes Again,� Dollars & Sense, March-April 2002.
 Mark Weisbrot, �Baltic
Countries Show What Greece May Look Forward to If It Follows EC/IMF Advice,�
The Guardian Unlimited, April 28, 2010.
 Nouriel Roubini, �The Debt
Death Trap,� Project Syndicate,
April 16, 2010.
author of the recently published The
Political Economy of U.S. Militarism
(Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines,