Varieties of imperial decline - crash inventory

China and Venezuela have agreed plans for Venezuela to increase its oil exports to China to one million barrels a day. They will build at least one refinery to increase China's refining capacity and also one in Venezuela. Together the two countries will build up a US$6 billion fund for other joint projects. The two countries are also proposing a shipbuilding company to build mega-tankers for shipping Venezuelan oil to China.

Among other plans are 13 joint agro-industrial projects covering fruit and vegetable freezing plants, tomato processing, fruit and vegetable drying operations, and others. Argentina may be a partner in some of these projects. China will shortly launch Venezuela's Simon Bolívar tele-communications satellite. A major cross-country railway is proposed for Venezuela with Chinese inputs and know-how. Obtuse US government foreign policy means US companies are lookers-on.

Venezuelan president Hugo Chavez sees all these programs as broadening the perspectives for the future development of the regional ALBA solidarity based trade and cooperation framework. Venezuela and its ALBA partners - Bolivia, Cuba, Dominica, Honduras and Nicaragua -  are leading the trend among resource-rich developing countries to challenge their countries' historical neo-colonial dependency and impotence.

By contrast, the United States is in profound crisis. Even back in 2003, it had become commonplace to argue that the global financial system, led by US easy money policy, was heading for a wreck. Insiders like Paul Volcker and Larry Summers thought it a potential likelihood. Outsiders like Michael Hudson and Henry Liu reckoned it a dead cert. They all knew the form of couldn't-run-a-bath central bankers, of the crooked US and European high finance cliques and of ruthless mediocre political opportunists like Bush, Chirac, Berlusconi, Aznar, Blair and Brown.

Further back along the crash time-line, even as the Berlin Wall was coming down, traditional big business in the US realised future profit levels were going to be problematic. The subsequent drift creating conditions for the financial sector to dominate more than ever, came naturally. The United States is a plutocracy of a superficial kind, drunk with lazy narcissism, floating nonchalantly along the bottom line.

With the North American Free Trade Agreement, the plutocracy blew goodbye kisses to ordinary people in the United States who watched their participation in a broadly based, well-balanced manufacturing economy dwindle before their very eyes. The US became more than ever a credit-driven, service-skewed, militarist economy. It also looked more than ever to foreign central banks to fund its current account deficit and to prevent its budget deficit from forcing up interest rates.

Europe, China, Japan and other countries were content to buy US paper debt because US consumers bought their goods. Buying US debt kept these countries' currencies competitive against the dollar. Europe and Japan also collaborated with the United States as loyal allies because the United States carried their military burden for them.

The so called dot.com crash in 2000 and 2001 was regarded as a "normal" recession rather than a harbinger of worse to come or of the need for corporate reform. Corporate propaganda brushed off the earlier 1998 Long Term Capital Management debacle and the subsequent Enron, Worldcom and Parmalat scandals as exceptional idiosyncracies of the system. In fact, they were clear examples of the deeply ingrained cronyism and fraud on which the financial system has always depended to boost profitability and keep crooked high finance charlatans sounding plausible.

The relatively modest property bubbles of the 1990s showed how readily asset prices could serve to help lever credit. Assets of all kinds came to be squeezed for every last cent of leverage they could yield. The deregulation lobby did away with key protective bulwarks like the Glass-Steagall Act. As financial complexity increased, profit-greedy plutocrats began seeing a mirage of risk made negligible by spreading it virtually to infinity.

The mirage only appeared when interest rates were low. Central banks dropped interest rates helping more and more people take on more and more debt. The 2001 attacks on the United States  accelerated the existing trend. Rapidly growing debt fuelled the asset price boom. The asset price boom fuelled the credit boom. Leverage limits for the investment house elite in the US were waived. Governments called asset price inflation "growth".

In the end, virtually worthless debt, most notably in the form of mortages, became a wholesale asset. Even the debt least likely to be paid back was sold, artfully dolled-up behind credit derivative make-up. Barely even notional supervision, dishonest ratings and blink-of-an-eye electronic trading worked together removing any chance of sober analysis. The complexity made possible by hyper-rapid computer automation paradoxically elongated the time that might elapse before some crucial transaction requiring payment would make buyers and sellers ask who should pay if some component of the transaction eventually became exposed as having no value.

Even when the Bear Stearns hedge funds went belly up in 2007, most market players and central bankers still saw things in terms of cash flow and liquidity problems. It was as if they had been asleep while the massive global dollar glut showered like manna around them for twenty years. By the time the Federal Reserve opened its Term Auction Facility at the end of 2007 and its Term Securities Lending Facility early in 2008, people in the US almost had to climb on each others' shoulders for gasps of thicker non-funny-money air.

The reality that the international financial system faced an insolvency crisis caused by obscure valueless derived securities really only dawned on most people when the US financial authorities financed J P Morgan bank's takeover of the Bear Stearns investment bank in March 2008. At the time people pointed fingers at Lehman brothers investment bank and the Washington Mutual bank as the next in line to fall.

If a bank wants to keep its balance sheet healthy, when it finds a loan has gone bad, to make good the loss it either has to raise capital by persuading investors to buy shares or cut back on its loans to the value of the money lost. They can also borrow money, cross their fingers and hope for the best. That seems to have been the origin of the Federal Reserve's term auction and lending facilities. The value of the dollar against the euro fell to as low as 1.60

But the system staggered on with the diversion of speculative funds into commodities, oil and food, apparently resulting largely from the weakness of the dollar. A combination of mutually reinforcing change in speculative sentiment and concerted action by central banks, governments and important financial institutions seems to have reversed the dollar's fall. The dramatic strengthening of the dollar in July 2008 caused a much needed drop in oil and food prices. People felt better. Market sentiment improved. That month, the apparently trouble-free Indymac bank went bust.

At the end of August 2008 the two corporations that propped up the US housing mortage market became insolvent. The government nationalized the two corporations - Fannie Mae and Freddie Mac - thus guaranteeing mortgages worth a total of well over US$5 trillion, significantly increasing the US national debt. The move was criticised as being carried out more in the spirit of sustaining the face-value of existing mortgages for the benefit of brokers and dealers, rather than helping millions of home-owners faced with foreclosure.

A couple of weeks later, Lehman Brothers went bankrupt. The government seized the massive American Insurance Group, putting up US$85bn in the process.  The Merrill Lynch investment bank was bought out by Bank of America. Investment houses Morgan Stanley and Goldman Sachs were turned from investment banks into banking holding companies. Washington Mutual bank was seized by regulators who believed it was insolvent. It was sold to J P Morgan.

Wachovia Bank, another of the biggest banks in the US was taken over by Citigroup who then lost it to Wells Fargo. In Europe the British government took over the Bradford and Bingley mortgage lender puttin gup over US$20bn, facilitating a sale to Spain's Santander financial group. In Germany, the government bailed out the Hypo Real property lender with €35bn. Belgium, Holland and Luxemburg combined to prop up the Fortis bank with €11.2bn. The French based Dexia lender received over €9bn of government support

Reality seemed finally to have dawned on mainstream economic commentators. They recognized that uncertainty as regards the remaining virtually valueless credit derived securities still hiding in financial market undergrowth might well take at least another year or more to work itself out. Over 100 US banks are now reckoned by the US authorities to be at possible risk of insolvency.

The argument currently is over how to help financial markets recover the trust on which they depend while at the same time protecting ordinary people from the effects of those markets' colossal failure. The authorities want to sustain values artificially via government buying dubious securities, while the financial sector consolidates, with giants like J P Morgan Chase and Bank of America buying up failing smaller fry. This means that, true to form, the US government is more focused on how to restore the financial ancien regime that has just collapsed than on the interests of the United States people.

The rest of the world looks on and wonders how far the damage will spread. Britain and Europe will certainly suffer. For its part, China has made clear it is very unhappy that its enormous dollar holdings are being diluted with every multi-billion bailout the US government announces. Even stalwart US ally, German Chancellor Angela Merkel has criticised the US and British authorities for failing to regulate adequately.

The crisis will not be the end of an international financial system geared to corporate profit for the benefit of a tiny global elite. But countries like China, Russia, India and Brazil are unlikely to continue to tolerate the instability caused by misguided "free market" ideologues and ruthless speculators in the US and Europe. Less wealthy developing countries in Latin America, South East Asia and Africa, too, are likely to seek new ways of combining so as to protect themselves from the destructive vagaries of Western Bloc militarist market capitalism.

In historical terms the peoples of countries like Ecuador, Bolivia, Venezuela and perhaps Argentina and Uruguay are around a decade ahead of the people of the United States. A majority of voters in the US have still to come to terms with their betrayal by their political and financial leaders. They will turn out and vote for McCain or Obama in the November presidential elections  despite beginning to recognize that their political and economic system is broken.

That process happened many years ago in Latin America. It lead to the overthrow of governments in Ecuador and Bolivia. It made possible the Bolivarian Revolution in Venezuela which is cooperating closely with every government in Central America and the Caribbean except Cold War relic El Salvador.

George W. Bush, Condoleezza Rice, John Negroponte and others have repeatedly alleged that the government of Venezuela led by Hugo Chavez is destroying Venezuela, is a destabilizing influence and a threat to the region. If one compares Venezuela to the United States now, those self-serving lies look much worse than simply pathetic, delusional propaganda. Malcolm X told the truth over 40 forty years ago, in Ghana in 1964:

"I just try to face the fact as it actually is and come to this meeting as one of the victims of America, one of the victims of Americanism, one of the victims of democracy, one of the victims of a very hypocritical system that is going all over this earth today representing itself as being qualified to tell other people how to run their country when they can’t get the dirty things that are going on in their own country straightened out."