Today's Stories

June 21 / 22, 2008

Alexander Cockburn
The Russert Send-Off

Pam Martens
A Secret Oil Gusher Inside Citigroup

Chris Floyd
Torturegate

Tim Wise
The Ugly Side of Disaster: Katrina and the Midwest Floods

Paul Craig Roberts
A Totally Lawless Regime

Michael Winship
How Countrywide Leveraged Washington

Ramzy Baroud
Palestine in the American Imagination

Alan Farago
The Off-Shore Drilling Scam

Michael Yates
Paul Krugman on Race: Ignorant and Disingenuous

Dave Lindorff
Keeping America Safe: Prosecuting Children as Terrorists

Bernard Chazelle
Why Israel Won't Accept a Two-State Solution

Linda Mamoun
Mearsheimer and Walt in Tel Aviv

Website of the Weekend
Slavery By Another Name

June 20, 2008

Robert Oscar Lopez
Brownout in Black Camelot: Obama and Latino Voters

Paul Craig Roberts
John Yoo, Totalitarian

Bouthaina Shaaban
The Real Arab AIPAC

Bill Quigley
The Big Lock-Up

Moshe Adler
Is Cuba Done With Equality?

Patrick Cockburn
An End to Iraq Contractor Immunity?

Andy Worthington
John McCain, Torture Puppet

Norman Solomon
Health Care and the Ghosts of War

Martha Rosenberg
Can Wyeth Fool American Women Twice?

June 19, 2008

Ralph Nader
Why Won't Corporations Take On Big Oil?

Chellis Glendinning
Techno-Fascism: Every Move You Make

Neve Gordon
Learning to Drive in Rafah

Dave Lindorff
Killing the News in Iraq

Sheldon Richman
Habeas Corpus Saved--Barely

George Bisharat
Obama's Missteps

Jackie Corr
Dear Mr. Kilowatt

Farzana Versey
Will Gorkhaland Become a Reality?

Website of the Day
Trouble on the Range

June 18, 2008

Nicole Colson
Hunger and Humiliation in the Belt-Tightening Economy

Rev. William E. Alberts
The "F" Word and the White Press

Vijay Prashad
Obama's Genuflections to the Swing Lobby

Parvez Ahmed
Oil Prices, Market Regulation and the Election

Bob Moss
Judicial Warfare in Boumediene

Dave Lindorff
The Elephant in the Room

David Wilson
Bush in London

June 17, 2008

Conn Hallinan
The Brain Trauma Vets

Wajahat Ali
Chomsky Speaks: On Iran and Iraq

Marjorie Cohn
Reviving Habeas Corpus

Uri Avnery
Two Professors: Mearsheimer and Walt in Israel

David Macaray
Adversarial Relationship

Rannie Amiri
Forgotten Lives in a Forgotten War

Website of the Day
Pentagon Money

June 16, 2008

Uri Avnery
An Apology

Corey D. B. Walker
The Racial Politics of Symbols

Howard Lisnoff
Files Upon Files

Dennis Loo
2008 Elections: Of Whales and Worms

Paul Craig Roberts
Obama and the Fall Into Tyranny

June 13 / 15, 2008

Douglas Valentine
McCain: War Hero or Go-To Collaborator?

Alexander Cockburn
Change, What Change?

Jeffrey St. Clair
The Politics of Timber Theft

Peter Linebaugh
On Wat Tyler Day

Ishmael Reed
The Colossus: Sonny Rollins, Take One

Joe Bageant
Old Dogs and Hard Time

Harry Browne
Ireland Shows the Way!

Andy Worthington
The Supreme Court's Gitmo Decision: What Does It Mean?

Jeff Sharlet
The F-Word

Binoy Kampmark
They Gassed Us: Agent Orange in OZ

Alan Farago
His Little Piece of the Pie

Brian Cloughley
America the Detested: the Pakistan Airstrikes

Manuel Garcia, Jr.
How to Stretch Gasoline

Reza Fiyouzat
Oil and Racism

Patrick Bond /
Richard Kamidza
How Europe Underdevelops Africa

David Yearsley
Music in the Rubble

Niranjan Ramakrishnan
Thank You, Dennis Kucinich!

Ronnie Cummins
Don't Panic; Go Organic

Dan Bacher
Bush Tries to Raid Salmon Disaster Funds

Michael Dickinson
Jesus in Megiddo Prison

Seth Sandronsky
My Father's World

Poets' Basement
Tu Fu / Rexroth

Website of the Weekend
Torture and the American Psyche

June 12, 2008

Judith Levine
As Cranes Fall and People Die

Patrick Cockburn
Amid Iraqi Fury, U.S. Offers Concessions on Military Bases

Saul Landau
The Iraq War Becomes Suicidal

Christopher Brauchli
Bush Bling-Bling: Government by Crony

Norman Solomon
Deadly Diplomacy

Helen Redmond
Why Can't We All Get KennedyCare?

Laura Carlsen
No Rest for the Working Poor

Jeremy R. Hammond
Threats Against Iran Escalate

Anne Landman
Pinkwashing: Can Shopping Cure Breast Cancer?

Website of the Day
Fire in Watts

June 11, 2008

Paul Craig Roberts
Why Oil Prices Are So High

Ralph Nader
Wall Street Gamblers

Joshua Frank
Why I Can't Support Barack Obama

Clifton Ross
Conversation in Miami: the Neoliberal Left and Socialism

Muhammad Idrees Ahmad
Whatever Happened to "Democracy Now?"

Stephen Lendman
Exposing Pentagon and CIA Corruption

Diane Farsetta
Talking Back to Bill O'Reilly

Ron Jacobs
The Sixties Painted Black

Deborah Rich
Hay Belly Nation: the FDA and the O-Word

Hop Wechsler
A Friend of Women? My Bill Clinton ... and Ours

Website of the Day
A New Path to the Waterfall

June 10, 2008

Alan Farago
John McCain and the Company He Keeps

James G. Abourezk
Deadly Fallout From Obama's Groveling Before Israel Lobby

Saree Makdisi
Banned in the U.S.A. (Almost)

Malini Johar Schueller
A Picture From Beirut

John Ross
Killing Foods, Killing People

Wajahat Ali
Rumi and Sufism

Peter Morici
Bernanke Aggravates Recession Risks

Jordan Flaherty
Inside Angola Prison, Louisiana's Last Slave Plantation

Gary Macfarlane
Collaboration on the Clearwater: Is It Legitimate?

Joanne Mariner
The Gitmo Trials: an Inglorious Start

Website of the Day
The End of the Clinton Machine?

June 9, 2008

Uri Avnery
No, I Can't: Obama, Israel and AIPAC

Nikolas Kozloff
McCain & the Republican Insitute: Promoting Iraqi Occupation for "a Million Years"

Allan Nairn
Drawing Your Last Breath Hungry

Dennis Loo
Threats on Iran and the "Batterer's Defense"

Harry Browne
Irish Euro Vote Comes Down to the Wire

C. Hand
U. S. Bid to Hike Iran's Gas Prices Seems Doomed

Peter Morici
An Unsustainable Trade Deficit

Kenneth Couesbouc
A Ripe Time for Inflation

Martha Rosenberg
The Inconvenient Senator Grassley

James L. Secor
Chinese Superstition or Unconscious Oracle?

Website of the Day
Pay Bo Diddley!

June 7 / 8, 2008

Alexander Cockburn
Obama Goes Over the Top

Ishmael Reed
How Miles Davis Changed My Life

Jeffrey St. Clair
What a Miner's Life is Worth

Nikolas Kozloff
Meet the King the Beers: John McCain and Latin America

Dave Lindorff
The High Cost of a Single War-Like Remark: Oil Prices, Israel, Iran and the U.S.

Robert Fantina
When Truth is the Casualty

Conn Hallinan
Iran and Rumors of War

Neve Gordon
The Occupation and the Politics of Death

Tom Barry
The Deterrence Strategy of Homeland Security

Patrick Irelan
Raiding the Packing House

Tim Wise
Your Whiteness is Showing

David Ker Thomson
The Hard Question

Joshua Frank
"Socialist" Wins Republican Nomination in Montana

David Yearsley
Disaster Music

James T. Phillips
1968: Year of the Rat

Joe Allen
The Real Bobby Kennedy

P. Sainath
Making Life Brighter in Kondapur

David Macaray
Should Unions be More Democratic?

B.R. Gowani
Experience and the Two-for-One

Fred Gardner
What Happened (at the DA's Office)

Peter Harley
Technology to the Rescue? Kurzweil and the Human Machines

Michael Dickinson
Surrender the Bones of Geronimo!

Jen Roesch
Where are the Real Women in Sex and the City?

Poets' Basement
Gibbons, Landau, and Buknatski

Website of the Day
Partying with the Waltons

June 6, 2008

Frank Barat
An Interview with Ilan Pappé and Noam Chomsky on the Future of Israel / Palestine

Patrick Cockburn
U.S. Extorts Iraq to Approve Military Deal

Gary Leupp
Cheney Enrages Iraqis Over Security Deal

James Abourezk
Name That Terrorist

Peter Morici
Recession Grips the Jobs Market

Faheem Hussain
What is NATO Doing in Afghanistan?

Andy Worthington
Guantánamo's Britons Go on Hunger Strike

Ayesha Ijaz Khan
How Will Musharraf Go? Impeachment or Safe Exit?

Dave Lindorff
Congress Needs to Defend Itself

Website of the Day
Backstage with Bo Diddley

June 5, 2008

Patrick Cockburn
Bush's Secret Deal Would Ensure Permanent U.S. Occupation of Iraq

Sharon Smith
Hillary's Wreckage

Nikolas Kozloff
Obama's Electoral Dilemma: Latinos or Reagan Democrats?

Linn Washington, Jr.
Police Brutality and Cover-Up in Philly

Omar Barghouti
60 Years of Nakba, 41 Years of Occupation ...

Scott Pellegrino
Jim Crow Radio: Bob Grant's Lifetime Achievement Award

John Walsh
Obama Woos AIPAC

Dan Bacher
The Parching of California

DC Larson
Nazi Rockers ... F-Off

Robert Jensen
Masculine, Feminine or Human?

Website of the Day
Ohio Cops Attack Long Walkers

June 4, 2008

Eric Walberg
Princess Patricia and the Taliban

Gary Leupp
Iran and EFPs: Chronology of a Lie

Ralph Nader
Disenfranchised Youth

Dave Lindorff
Of Whiners and Poor Losers

George Wuerthner
Farm Economics

Victor M. Rodriguez
The Puzzle of Race and Politics

Remi Kanazi
Why a Cultural Boycott of Israel is Needed

Stephane Luçon
Renault's Romanian Fairyland Suspended

Farzana Versey
The Tablighi Jamaat Movement

Laray Polk
The Militarization of Space

Website of the Day
Red State Rebels

June 3, 2008

Paul Craig Roberts /
Lawrence M. Stratton
Legislating Tyranny

Mike Whitney
The Withering Economy

Steve Early
San Juan Showdown

Manuel Otero
Why Hillary Won Puerto Rico: the View from the Colony

George Bisharat
The Hope of a Victimized People

Nikolas Kozloff
Obama's VP Quandry

Dan Bacher
Death on the Salmon Highway

Website of the Day
Censoring Bill Knott?

June 2, 2008

Uri Avnery
The Olmert Scandal

Nikolas Kozloff
Obama's Latino Problem Getting Worse

Allan J. Lichtman
Revisionist History: Bush, Borah and Hitler

Malini Johar Schueller
The Color of Randomness: Returning to the US From Beirut Via Syria

Robert Weissman
What's Driving Skyrocketing Oil Prices?

Peter Morici
Bailing Out Wall Street

Manuel Garcia, Jr.
Don't Get Burned: How to Protect Yourself From Raytheon's Pain Gun

John Ross
Celebrating Catholic Fanaticism in Mexico

Ahmad Al-Akhras
Encounters with the Watch List

Website of the Day
Man on Earth

May 31 / June 1, 2008

Alexander Cockburn
The Worst is Yet to Come

Jeffrey St. Clair
Arkansas Bloodsuckers

Gary Leupp
How McClellan Prettifies Bush

Stan Cox
Broken Agriculture

Rannie Amiri
Lebanon: the Domino That Wouldn't Fall

P. Sainath
A Guaranteed Day's Work--in the Fields, at 110 Degrees, for $2 a Day

Binoy Kampmark
Going Bankrupt in Vallejo

Robert Fantina
Bush, Rice and McClellan

Seth Sandronsky
Will There be Water Riots, as Sacramento Goes Dry?

Corporate Crime Reporter
Death Penalty for Bush?

Anthony DiMaggio
Gaming the Ghetto: Grand Theft Auto IV, Racist Media and the Concrete Jungle

Karl Grossman
A Half-Trillion for Nukes

Matt Reichel
From Vegas to the Heartland and Back Again

Paul Myron Hillier
Of Gas and God

Andy Worthington
Suicide at Guantánamo

David Yearsley
And the Winner is ... Wayne Shorter

Daniel Cassidy
Free Lunch

Charles Thomson
If Hitler Had Been a Hippy ...

Gary Corseri
A Dream Deferred: Activism and the Arts

Wajahat Ali
Sex and the City Through a Man's Eyes

Ron Jacobs
Robins Weep

Poets' Basement
McNeill and Davies

Website of the Day
Last Charge of the Light Horse

May 30, 2008

Bassam Aramin
Here's the Truth You've Been Running From

Andrew Cockburn
Petraeus' Iran Obsession

Saul Landau
How We Got Into This Mess

Nikolas Kozloff
Meet South America's New Secessionists

Robert Sandels
Turning Back the Clock on Cuba

Dave Lindorff
Talk is Cheap

Martha Rosenberg
Raiding Big Meat; Arresting the Wrong People

Harvey Wasserman
Lieberman & McCain: Linking Internet Censorship and Atomic Reactor Terror

Doug Giebel
A Plague on Both Your Houses (of Congress)

Shaun Harkin
The Trial of the Raytheon 9

Website of the Day
The Once and Future Environmental Movement

May 29, 2008

Jeffrey St. Clair
Bill Clinton and the Rich Women

Nikolas Kozloff
Puerto Rico, Obama and the Politics of Race

Col. Dan Smith
Deceiving the Dead

Karl Grossman
The Most Lucrative Incentive for Nuclear Power in the History of the United States

William S. Lind
Inside the Washington Game

Robert Weissman
What to do About the Price of Oil

Dave Lindorff
Why Puerto Rico Won't Matter

David Macaray
A Union Fable

Chris Genovali
Fear and Loathing in the Northern Rockies

Laura Carlsen
Mexico's Battle Over Oil

Website of the Day
Support Antiwar.com

May 28, 2008

Wajahat Ali
The Libertarian Dark Horse: An Exclusive Interview with Ron Paul

Ralph Nader
What's Really Driving the High Price of Oil?

Brian McKenna
Why I Want to Teach Anthropology at the Army War College

Corporate Crime Reporter
Why Vincent Bugliosi Wants to Prosecute George W. Bush for Murder

Brian Cloughley
The Attack on Damadola

Eric Walberg
Opium for the Masses from Afghanistan

Michael Dickinson
Raytheon's Pain Ray: Coming to a Protest Near You

Ijaz Khan
Opening Windows in Pakistan

Website of the Day
Older Than America

May 27, 2008

Alexander Cockburn
In Her Mind She's Killed Before: the Plot to Assassinate Ralph Nader

Greg Kafoury
Is Obama Turning (Further) Right?

Jean Bricmont
Western Delusions

Tim Wise
Farrakhan is not the Problem

Ricardo Alarcón
Puerto Rico's Turn

Stephen Soldz
APA Supports Psychologist Engagement in Bush Regime Interrogations

Andy Worthington
The Guantánamo 16

Alan Singer
Vapid, Stupid and Insulting: Chuck Schumer Speaks to the Graduates

Richard Neville
Storm in an A-Cup

Susie Day
Gone with the W

May 26, 2008

Uri Avnery
The Syrian Option

Bill Quigley
War Immemorial Day

Col. Dan Smith
Retreating from Hell: a Different Memorial Day

Cindy Sheehan
Why Memorial Day is a Double-Whammy for Me

Marjorie Cohn
Hillary's Assassination Politics: Her Last Shot?

Fred Gardner
Does the VA Care?

Raymond J. Lawrence
Pain Pays: Getting Rich at NY Presbyterian Hospital

Harvey Wasserman
Mugging the Election System

Moncia Benderman
Truth Matters

David Rovics
In Praise of Utah Phillips

Website of the Day
Fox News Jokes About "Knocking Off" Osama and Obama

May 24 / 25, 2008

Alexander Cockburn
Death-Wish Hillary Primes Manchurian Candidate

Jeffrey St. Clair
Yellowstone: How Sununu Shrank the Ecosystem

Barbara Rose Johnston
Dam Legacies, Damned Futures

Nikolas Kozloff
U.S. Fourth Fleet in Venezuelan Waters

Adriana Kojeve
The Environment and the 2008 Elections

Robert Fantina
Justice Department's Revelations on Torture

Dave Lindorff
Bush's War on Children in Iraq

David Yearsley
The War on Kitsch

Nelson P. Valdés
The Buying of "Democracy" Agents in Cuba

Kathleen M. Barry
Celebrating Ethnic Cleansing

John Ross
Mexico's Narco Opera Reaches for High Point

Allison Kilkenny
Apathy Doesn't Live in Bronx

Fred Gardner
Orangeburg, 1968

Elizabeth Schulte
Can the Whole World be Fed?

Daniel Gross
Remembering the Wendy's Massacre: the Dangerous Side of Retail Work

Christopher Brauchli
The Search for a Token Right-winger

Richard Rhames
A Nation of Sheep

Daniel Cassidy
My Mother

Poets' Basement
Davies, Klipschutz and Willson

Website of the Weekend
Happy Birthday, Bob

May 23, 2008

Paul Craig Roberts
War Abroad, Poverty at Home

Alan Farago
The Radical Extremists of the Building Industry

Conn Hallinan
Ballots and Bullets: From Beirut to Bolivia

Mark Engler
The World After Bush

George Wuerthner
Cars and Cows: Living Large in America

Kamran Matin
The Kurds and American Neo-Imperialism

Sandy Boyer /
Shaun Harkin
The Long Incarceration of Pol Brennan

Robert Weitzel
A "Holey" Instrument of Peace in Iraq

Cindy Sheehan
An Uphill Battle

Liaquat Ali Khan
Pakistan's Futile Constitutional Amendment

Website of the Day
A Message from the Moral Compass of the McCain Campaign

May 22, 2008

Vijay Prashad
Racist Grammar

Joanne Mariner
A Military Commissions Cheat Sheet

Sharon Smith
60 Years of Apartheid

Jeff Birkenstein
Disaster Redux: Some Early Thoughts on the Earthquake in China

Brendan McQuade
From Obama to the PRTs in Iraq

Peter Morici
The Sorry State of the Banking Industry

Niranjan Ramakrishnan
Restoration Boulevard

Dave Zirin
What I Want to Ask Mary Tillman

Ron Jacobs
CPR for the Antiwar Movement

Stephen Lendman
Immoral Hazard

Website of the Day
Hagee: God Sent Hitler to Drive the Jews to Israel

May 21, 2008

Jeffrey St. Clair
The Gothic Politics of Hillary Clinton

Nikolas Kozloff
U.S. Military Bases in South America

Alan Farago
Miami, Cuba and the Presidential Campaign

Dave Lindorff
Big John and the Scary, Scary Iran Threat

David Model
Genocide in Iraq?

Eric Walberg
Afghanistan: Who is the Enemy?

Franklin Lamb
Lebanon Gets a President

Kenneth Couesbouc
Tax Against Tyranny

Website of the Day
Child Labor and War-Affected Children: a Photo Essay

May 20, 2008

Ralph Nader
A Trip Inside Google

Uri Avnery
With Friends Like These

Patrick Irelan
The Empire and the Fleet

Ray McGovern
Come Out, Admiral Fallon, Wherever You Are

David Macaray
The UAW Strike Against American Axle

Chris Genovali
Big Oil on the Water: Skating Around the Tanker Issue

Ibrahim Fawal
Birmingham, Israel and the Nakba

Christopher Ketcham
Let Us Now Praise Famous Suicides

Andy Worthington
Guantánamo Trial Delayed

Martha Rosenberg
Merck is a Repeat Offender

Website of the Day
Defend the Students Who Pied Tom Friedman

May 19, 2008

Saul Landau
Cuba Will Live

Paul Craig Roberts
The Metamorphosis of the Conservative Movement

Brian McKenna
Brotherly Love in Philly's Badlands

Patrick Cockburn
City of the Dead: Mosul on Lockdown

B. R. Gowani
The Central Problem Pakistan Needs to Tackle

Dr. Trudy Bond
Psychologists and Torture: If Not Now, When?

Cindy Sheehan
Whose War is It?

John Mohawk
The Warriors Who Turned to Peace

Remi Kanazi
When Free Speech Doesn't Come for Free

Robert Day
I Get a Horse

Website of the Day
Evolve or Die

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An Interview with Michael Hudson on the Economy

The Game is Over. There Won't be a Rebound

By MIKE WHITNEY

Mike Whitney: Fed chairman Bernanke has been on a spree lately, delivering three speeches in the last two weeks. Every chance he gets, he talks tough about the strong dollar and "holding the line" against inflation. Treasury Secretary Henry Paulson even said that "intervention" in the currency markets was still an option. Is all of this jawboning just saber rattling to keep the dollar from plummeting, or is there a chance that Bernanke actually will raise rates at the Fed's August meeting?

Michael Hudson: The United States always has steered its monetary policy almost exclusively with domestic objectives in mind. This means ignoring the balance of payments. Like the domestic U.S. economy itself, the global financial system also is all about getting a free lunch. When Europe and Asia receive excess dollars, these are turned over to their central banks, which have little alternative but to recycle these back to the United States by buying U.S. Treasury bonds. Foreign governments – and their taxpayers – are thus financing the domestic U.S. federal budget deficit, which itself stems largely from the war in Iraq that most foreign voters oppose.

Supporting the dollar’s exchange rate by the traditional method of raising interest rates would have a very negative effect on the stock and bond markets – and on the mortgage market. This would lead foreign investors to sell U.S. securities, and likely would end up hurting more than helping the U.S. balance of payments and hence the dollar’s exchange rate.

 So Bernanke is merely being polite in not rubbing the faces of European and Asian governments in the fact that unless they are willing to make a structural break and change the world monetary system radically, they will remain powerless to avoid giving the United States a free ride – including a free ride for its military spending and war in the Near East.

Mike Whitney : How do you explain the soaring price of oil? Is it mainly a supply/demand issue or are speculators driving the prices up?

Michael Hudson: It’s true that enormous amounts of speculative credit are going into commodity index funds. But bear in mind that as the dollar depreciates, OPEC countries have been holding back supply largely to stabilize their receipts in euros and to offset their losses on the dollar securities they have bought with their past export proceeds. For over 30 years they have been pressured to recycle their oil earnings into the U.S. stock market and loans to U.S. financial institutions. They have taken large losses on these investments (such as last year’s money to bail out Citibank), and are trying to recoup them via the oil market. OPEC officials also have pointed to a political motive: They resent America’s military intrusion in the Middle East, especially in view of how much it contributes to the nation’s balance-of-payments deficit and federal budget deficit.

The U.S. press prefers to blame Chinese, Indian and other foreign growth in demand for oil and raw materials. This demand has contributed to the price rise, no doubt about it. But the U.S. oil majors are receiving a windfall “economic rent” on the price run-up, and are not at all unhappy to see it continue. By not building more refining and shipping capacity, they have created bottlenecks so that even if foreign countries did supply more crude oil, it would not be reflected in refined gasoline, kerosene or other downstream product prices.

Mike Whitney: The Fed has traded over $200 billion in US Treasuries with the big investment banks for a wide variety of dodgy collateral (mostly mortgage-backed securities). How can the banks possibly hope to repay the Fed when their main sources of revenue (structured investments) have been cut off? Are the banks secretly using the money they borrow via repos from the Fed to dabble in the carry trade or speculate in the futures markets?

Michael Hudson: The Fed’s idea was merely to buy enough time for the banks to sell their junk mortgages to the proverbial “greater fool.” But foreign investors no longer are playing this role, nor are domestic U.S. pension funds. So the most likely result will be for the Fed simply to roll over its loans – as if the problem can be cured by yet more time.

But when a bubble bursts, time makes things worse. The financial sector has been living in the short run for quite a while now, and I suspect that a lot of money managers are planning to get out or be fired now that the game is over. And it really is over. The Treasury’s attempt to reflate the real estate market has not worked, and it can’t work. Mortgage arrears, defaults and foreclosures are rising, and much property has become unsaleable except at distress prices that leave homeowners with negative equity. This state of affairs prompts them to do just what Donald Trump would do in such a situation: to walk away from their property.

The banks are trying to win back their losses by arbitrage operations, borrowing from the Fed at a low interest rate and lending at a higher one, and gambling on options. But options and derivatives are a zero-sum game: one party’s gain is another’s loss. So the banks collectively are simply painting themselves into a deeper corner. They hope they can tell the Fed and Treasury to keep bailing them out or else they’ll fail and cost the FDIC even more money to make good on insuring the “bad savings” that have been steered into these bad debts and bad gambles.

The Fed and Treasury certainly seem more willing to bail out the big financial institutions than to bail out savers, pensioners, social Security recipients and other small fry. They thus follow the traditional “Big fish eat little fish” principle of favoring the vested interests.

Mike Whitney: According to most estimates, the Fed has already gone through half or more of its $900 billion balance sheet. Also, according to the latest H.4.1 data  "the current holdings of Treasury bills is $25 billion.  This is down from some $250 billion a year ago, or a net reduction of 90 per cent." (figures from Market Ticker) Doesn't this suggest that the Fed is just about out of firepower when it comes to bailing out the struggling banking system? Where do we go from here? Will some of the larger banks be allowed to fail or will they be nationalized?

Michael Hudson: You need to look at what the Treasury as well as the Fed is doing. The Fed can monetize whatever it wants. And as you just pointed out in the preceding question, it has been buying junk securities in order to leave sound Treasury securities on the banking system’s balance sheets. Government bailout credit will keep the big banks alive. But many small regional banks will go under and be merged into larger money-center banks – just as many brokerage firms in recent decades have been merged into larger conglomerates.

False reporting also will help financial institutions avoid the appearance of insolvency. They will seek more and more government guarantees, ostensibly to help middle-class depositors but actually favoring the big speculators who are their major clients.

What we are seeing is the creation of a highly concentrated financial oligarchy – precisely the power that the Glass-Steagall Act was designed to prevent. A combination of deregulation and “moral hazard” bailouts – for the top of the economic pyramid, not the bottom – will polarize the economy all the more.

Cities and states will preserve their credit ratings by annulling their pension obligations to public-sector workers, and raising excise taxes – but not property taxes. These already have fallen from about two-thirds of local budgets in 1930 to only about one-sixth today – that is, a decline of 75 percent, proportionally. While the debt burden and the squeeze in disposable personal income is pressuring workers, finance and property are using the crisis to get a bonanza of tax relief. Democrats in Congress are as far to the right as George Bush on this, as their base is local politics and real estate.

Mike Whtney: According to the Financial Times: "Analysts at Citigroup said a planned tightening of the rules regarding off-balance sheet vehicles would force banks to reconsider arrangements and could result in up to $5,000bn of assets coming back on to the books. The off-balance sheet vehicles have been used by financial institutions to keep some assets off their balance sheets, thereby avoiding the need to hold regulatory capital against them." Is there any way the banks can find investors with "deep enough pockets" to provide the capital they need to meet the requirements on $5 trillion dollars? Are most of these off-balance sheets assets mortgage backed securities and other hard-to-value bonds?

Michael Hudson: The practice of off-balance-sheet accounting already has become quickly obsolete this year. The United States is going to adopt Europe’s normal “covered bond” practice of bank head-office liability for mortgages and other loans. (The Wall Street Journal had a good article on this on June 17, anticipating that the U.S. covered bond market might rise quickly to $1 trillion as early as next year.)

This coverage is what has given European banks protection. In view of the heavy losses of German banks in Saxony and Düsseldorf in the U.S. subprime market last summer, it’s unlikely that investors will buy mortgages that no major
bank or government agency stands behind.
            
Regarding more investor bailouts, I don’t see that it makes sense to lend money to a bank today without getting preferential treatment over existing holders, plus secure collateral. Government guarantees might help, especially for foreign investors. But then, the dollar’s plunge is a problem here.

Mike Whitney: Many of the TV financial gurus --as well as Henry Paulson--keep assuring us that the worst is behind us, but I don't see it. Foreclosures are increasing, the dollar is falling, unemployment is rising, manufacturing is sluggish, food and fuel are soaring, and consumers are backed up on their credit cards, student loans and house payments. Where would you say we are in the present cycle? What will it take to rebound from the current slump? Will the stock market take a beating before all this is over? What do you think the greatest problem facing the economy is; inflation or deflation?

Michael Hudson:  The idea that we’re even in a business “cycle” is whistling in the dark. If we’re in a cycle, then that implies there’s an automatic recovery in store. This happy free-market idea was developed at the National Bureau of Economic Research by opponents of government regulatory policy. But the economy doesn’t move by a sine curve. There is a slow buildup, and a sudden plunge, so the shape is ratchet-shaped. This is why 19th-century writers didn’t speak of economic cycles, but rather of periodic financial crises.

Today’s plunging real estate and stock market prices are not a self-correcting ebb and flow in which downturns set in motion automatic stabilizers that produce recovery. Each U.S. recovery since World War II has started out from a higher level of debt. The result is like driving a car with the brakes pressed more and more tightly. Alan Greenspan at the Federal Reserve flooded the banking system with enough credit to enable debts to be carried by borrowing against the rising price of homes and office buildings, corporate stocks and bonds. In effect, the interest charge was simply added onto the debt balance.

But today, the prospects are dim for paying off debts out of further price gains for homes and real estate. Speculators have pulled out of the market – and as late as 2006 they accounted for about a sixth of new purchases. Asset-price inflation fueled by the Federal Reserve – is giving way to debt deflation. The United States and other countries have reached a limit in which scheduled interest and amortization absorb the entire economic surplus of so many individuals, companies and government bodies that new construction, investment and employment are grinding to a halt. Families, real estate investors and companies are obliged to use their entire disposable income to pay their creditors or face bankruptcy. This leaves them without enough money to sustain the living standards of recent years.

This means that there won’t be a rebound, and it will take longer than 2009 to recover.

MW: I read about 8 or 9 articles every day about the meltdown in housing. I always tell my wife that its like reading a Tom Clancy novel except the ending is less certain. As Yale economist Robert Schiller pointed out last month; the decline in prices is now greater than it was during the Great Depression. Will prices find a bottom in 2009 or will it take longer? If prices keep falling then how are the banks going to sell the hundreds of billions of dollars of mortgage-backed securities that they are presently holding? 

Michael Hudson: Prices will keep going down, because they have been fed by plunging interest rates, zero-amortization mortgages and low or zero (or even negative) down payments in recent years. That world has ended.

It means that the banks can’t sell their mortgage-backed securities – except to the government, at a loss except to insiders. The actual losses are much worse than the present price statistics show, because many people are frozen in with negative equity. So instead of price declines, we’ll simply see many more foreclosures.

Mike Whtiney: How serious is the current crisis in the financial markets and housing and what steps do you think Obama or McCain should take to stabilize the markets, reduce the deficits, strengthen the dollar, increase employment, and put the economy on solid footing? Is it possible to have a strong economy without policies that distribute the nation's wealth more equitably? As chief economic advisor to Rep Dennis Kucinich, what one bit of advice would you give to Obama to restore America's economic vitality and put the country on the right path again?

Michael Hudson: In academic economic terms, America has never been in as “optimum” a position as it is today. That’s the bad news. An optimum position is, mathematically speaking, one in which you can’t move without making your situation worse. That’s the position we’re now in. There’s nowhere to move – at least within the existing structure. “The market” can’t be stabilized, because it was artificial to begin with, based on fictitious prices. It’s hard to impose fiction on reality for very long, and the rest of the world has woken up.

In times past, bankruptcy would have wiped out the bad debts. The problem with debt write-offs is that bad savings go by the boards too. But today, the very wealthy hold most of the savings, so the government doesn’t want to have them take a loss. It would rather wipe out pensioners, consumers, workers, industrial companies and foreign investors. So debts will be kept on the books and the economy will slowly be strangled by debt deflation.

The US can’t reduce the balance-of-payments deficit without scaling back its foreign military spending. Congress is refusing to let foreign governments invest in much besides overpriced junk here, so central banks are treating the dollar like a hot potato, trying to buy foreign assets that can play a role in their own future economic development.

I think that at some point Obama will have to tell the public the bad news that restoring vitality will take radical measures – probably ones that Congress will try to water down so much that things are going to get worse – much worse – before the needed reforms will be made. He can say this before taking office, blaming the Republicans for their regressive tax policies and at the same time bringing pressure on the new Democratic Congress to back a return to progressive taxation and serious financial restructuring. As president, he will have to do what FDR did, and challenge the financial oligarchy with new government regulatory agencies staffed with real regulators, not deregulators as under the Bush-Clinton-Bush regime.

He should make large depositors and “savers” take the losses on their bad bets. And he should repeal the Clinton repeal of Glass Steagall.

Most of all, he will have to make the tax system back progressive again if the domestic market is Social Security and medical care should be paid out of the general budget, not as user fees. And until this change is done, FICA withholding should be levied on total income, without an upper cutoff point. There should be a LOWER cut-off point, however: Only people who earn over $60,000 a year should contribute. This would end up being fairly revenue-neutral. Pres. Obama should say that his policy is not to “soak the rich.” It is to make them pay their way once again by favoring a strong middle class.

Unless he does this, what used to be a democracy will be turned into an oligarchy. And oligarchies historically are so short-sighted that they stifle the domestic economy, driving enterprise and emigration abroad. This threatens to reverse America’s long-term affluence, which means literally a flowing-in – an inflow of capital, of skilled immigrants and other labor, of technology, and of foreign support. All this has now been put in danger by the policies pursued at least since 1980.

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

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