Saturday, November 21, 2009


Much has been made of the abolition, by President Clinton in 1999, of the Glass-Steagall Act which separated investment banking from commercial banking after the 1929 Wall Street crash.

But few have stepped back to note the even more profound policy implications of the 2000 expiry of the Humphrey-Hawkins Act. Economics writer Henry C.K.Liu has noted that the Humphrey-Hawkins legislation in theory behoved the US government and Federal Reserve to sustain full employment.(2)
Among other things it “explicitly states that the federal government will rely primarily on private enterprise to achieve the four goals of full employment, growth, price stability, and balance of trade and budget. Liu's persuasive gloss on that is, "Implicitly, private enterprise must be regulated so that corporate profit is structurally aligned with the achievement of the four policy goals. The private sector cannot be allowed to prosper with counterproductive activities that negate the four policy goals and treat social costs as externalities to business. In welfare economics, an externality is a socio-economic cost created by one actor, the payment for which is imposed on others."

The expiry of the Humphrey-Hawkins Act was, in effect, the last goodbye to a United States governed in any sense for the benefit of the majority. It was President Clinton and the Democrat wing of the US oligarchy who finally and categorically handed over the United States economy to the country's corporate plutocracy.

In Latin America, the ALBA countries are building an unprecedented economic system with the human person at its centre, based on solidarity, cooperation, redistribution and complementarity. By contrast, the United States government and legislature have abandoned all but the most vestigial remains of any humanist, humanitarian vision of political economy. It is worth exploring this contrast more deeply, because it also explains why US imperialist military aggression is likely to plunge the region into war.

They created enormous volumes of out-of-control debt in the shape of convoluted notional securitized assets and swap quasi-insurance-bets beyond the reach of Central Banks and other regulators. Governments and Central Banks blatantly and grotesquely abrogated their regulatory functions in the name of "free markets", despite the accumulated wisdom of decades indicating that poorly regulated markets are bound to fail. Asset price inflation and ballooning debt were treated with unbelievable crassness by incestuous economic and political authorities as if they equalled growth.

Now, a structural adjustment is being imposed by their governments on the peoples of Western Bloc financial delinquents like the United States, Britain, Spain and Ireland, to name the obvious cases. At the same time, trillions of dollars - over US$13 trillion in the US alone - have magically appeared with which to bail out Western Bloc financial institutions.

Relatively trifling sums available for social spending, for reducing poverty at home and for development cooperation overseas, are cut. Conversely, the US military budget increases each year by hundreds of billions of dollars.

Forget the fairy tale of the "free market". No such thing has ever existed, nor ever will. Central banks and governments work intimately with giant corporate finance entities to nudge markets along desired lines - that is why, for example, major US financial entities like Goldman Sachs, J.P.Morgan, Citigroup, Bank of America, Wells Fargo, Morgan Stanley and insurance giant AIG have been underwritten through the financial crisis, one way or another, by the US government.

Note that Goldman Sachs, Citigroup, J.P.Morgan, Morgan Stanley and Bank of America are all Primary Government Securities Dealers - vital Federal Reserve partners in managing global markets. (4) Right now the dollar is being allowed to slide just as it was from 2007 into 2008. Once again commodity prices are rising sharply. Oil has risen abruptly to over US$80. Gold is well over US$1000.

This is not just because a weaker dollar helps close the US current account deficit. That kind of old-economy-thinking expired along with the Humphrey-Hawkins Act. Volatile dips, swings and lurches in commodity and currency markets allow major rich-country corporate financial entities to make billions of dollars in profits via bets using hapless tax-payers' bail-out money. On top of that, the low Federal Reserve funds rate means banksters are able to borrow at almost zero interest.

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