October 26th 2013

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Articles from this issue:

COVER STORY: Global instability and debt undermining democracy

CANBERRA OBSERVED: Why GrainCorp should remain in Australian hands

EDITORIAL: Indonesia new cornerstone of Australia's foreign policy

MARRIAGE LAW: Ploy to make Coalition legalise same-sex marriage

VICTORIA: Melbourne GP may be struck off after refusing abortion referral

VICTORIA: Screaming radicals, feminists attack pro-life marchers

ENVIRONMENT: Threat to free speech from eco-activist secondary boycotts

ENVIRONMENT: IPCC report: triumph of spin over substance

ECONOMIC AFFAIRS: Will exports or our home market be our salvation?

POPULATION: High-rise apartment living produces smaller families

POPULATION: We already grow enough food to feed 10 billion people

HISTORY: Theodore Roosevelt: a study in resilience

HISTORY: Australia's journey: From prison to democracy in 40 years

CULTURE: Whoever pays the piper calls the tune

BOOK REVIEW The economics of self-sufficient households

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COVER STORY: Global instability and debt undermining democracy

by Patrick J. Byrne

News Weekly, October 26, 2013

The world’s central bankers believe that the world faces the prospect of more bubbles, financial crises and currency collapses because of their inability to fix the world trade and global financial systems.

The recent meeting of the world’s central bankers in the American city of Jackson Hole, Wyoming, was marked by a fatalistic acceptance that they lack the tools with which to fix the flawed global trade and financial systems, according to Robin Harding of London’s Financial Times.[1]

Certainly, central banks and governments managed to stop the 2008 global financial crisis (GFC) from deepening into another 1930s-style Great Depression. They did this by printing money to fund the largest financial bail-out in history and for lending to governments.

However, nothing has been done to correct the global trade imbalances created by mercantilist trade and financial policies of countries such as China, or by the windfalls export earnings of oil-exporting countries in the Middle East and countries such as Russia.

At the heart of the problem, big exporting countries have amassed huge currency reserves, while the big importing nations have run up large national debts.

Large capital flows from the exporting nations back to the debtor (importing) countries have created the bubbles, financial crises and currency collapses that have intensified with each new crisis over the past 40 years.

For example, the capital amassed by China from its export boom was loaned back to the United States, creating the property bubble that burst in 2008, triggering the GFC.

No mechanism had been put in place to prevent the emergence of these imbalances, since the collapse of the Bretton Woods system in 1973.

While solutions have been proposed, there has been no political will to solve the problem.

New financial regulations have been put in place, but such regulations don’t solve the flaws in the international trade and financial systems that, as Robin Harding says, “are old and profound” and have defeated “any effort to work around them” since the end of the Bretton Woods era.

Five years after the GFC, unemployment rates remain stubbornly high, whereas in previous recessions since World War II, employment bounced back within two to three years.

In the US, unemployment is 7.3 per cent. Only 63.2 per cent of working-age Americans have a job or are looking for a job, the lowest proportion since 1978. Nearly 90 million people are estimated to be out of the labour force.[2]

This unemployment is occurring at the same time as the top one per cent of Americans are receiving the largest share of all income, excluding capital gains, since 1929. Moreover, their share is continuing to rise sharply.[3]

In the European Union, unemployment is 12 per cent, and youth unemployment is over 23 per cent. The highest rates are in Greece (27.9 per cent) and Spain (26.2 per cent), according to the European Commission.[4] (August 2013).

In a recent report by the Red Cross into the devastating humanitarian impact of Europe’s financial crisis, the organisation said that it had recorded a 75 per cent increase in the number of people relying on their food aid over the last three years.

It is estimated that at least 43 million people across the Continent are not getting enough to eat each day and 120 million are at risk of poverty.[5]

One of the first responsibilities of any liberal democracy is to set in place economic policies that will ensure high and stable levels of employment.

What will happen to democracy in a nation where the government can no longer enact policies to bring down high unemployment rates among its citizens?

This is the question asked by Samuel Rines, an economist with Chilton Capital Management in Houston, Texas.[6] He says that the debt load of these countries is now threatening the survival of their democratic way of life.

This is because countries such as Greece are no longer ruled by popular vote and the legislature, but by an unelected group imposing austerity measures on the country in the interests of foreign lenders.

Rines writes: “The concentration of power in a debt democracy lies not in an elected leader, but in an extra-national or non-governmental entity with the de facto power to impose its will on the debtor.

“The unelected are in control of the domestic decision mechanism, i.e., the money, and sovereignty of the mass citizenry is lost to the power of the outside few.

“Policies adopted under the aegis of fiscal consolidation result in the inability to govern, and demands of creditors to reduce government deficits and employment drastically reduce the populations’ feeling of political enfranchisement.”

The economic crisis has left the citizens of these “debt democracies” disenchanted with liberal democracy and with the temptation to elect a powerful, nationalistic executive instead.

“Is it so difficult to comprehend the election of a strong man, when one is already in place?” asks Rines.

Patrick J. Byrne is national vice-president of the National Civic Council.


[1] Robin Harding, “Central bankers have given up on fixing global finance”, Financial Times (UK), August 27, 2013.
URL: www.ft.com/cms/s/0/020103b6-0b4e-11e3-bffc-00144feabdc0.html

[2] Ylan Q. Mui and Amrita Jayakumar, “Unemployment dips to 7.3 percent, but only 63% of Americans are in labor force”, Washington Post, September 6, 2013.
URL: www.washingtonpost.com/business/economy/economy-added-169k-jobs-in-august-as-the-recovery-grinds-along/2013/09/06/696820dc-16ef-11e3-a2ec-b47e45e6f8ef_story.html

[3] Mike Konczai, “The 1 percent took home the largest share of income since 1928 last year”, Next New Deal (the blog of the Roosevelt Institute, New York), September 12, 2013.
URL: www.nextnewdeal.net/rortybomb/1-percent-took-home-largest-share-income-1928-last-year

[4] Unemployment statistics, European Commission, August 2013.
URL: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics

[5] Charlotte McDonald-Gibson, “Red Cross launches emergency food aid plan for UK’s hungry”, The Independent (UK), October 11, 2013.
URL: www.independent.co.uk/news/uk/home-news/exclusive-red-cross-launches-emergency-food-aid-plan-for-uks-hungry-8872496.html

[6] Samuel Rines, “How debt destroys democracy”, The National Interest (Center for the National Interest, Washington DC), October 7, 2013.
URL: http://nationalinterest.org/commentary/how-debt-destroys-democracy-9190

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