Colonization by Bankruptcy: The High-stakes Chess Match for Argentina … Argentina is playing hardball with the vulture funds, which have been trying to force it into an involuntary bankruptcy. The vultures are demanding what amounts to a 600% return on bonds bought for pennies on the dollar, defeating a 2005 settlement in which 92% of creditors agreed to accept a 70% haircut on their bonds. A US court has backed the vulture funds; but last week, Argentina sidestepped its jurisdiction by transferring the trustee for payment from Bank of New York Mellon to its own central bank. That play, if approved by the Argentine Congress, will allow the country to continue making payments under its 2005 settlement, avoiding default on the majority of its bonds. Argentina is already foreclosed from international capital markets, so it doesn't have much to lose by thwarting the US court system … Countries are increasingly breaking away from the oil- and weapons-backed US dollar as global reserve currency. To resolve the mutually-destructive currency wars will probably take a new Bretton Woods Accord. – Ellen Brown, Web of Debt website
Dominant Social Theme: We need global democratic elitism to solve elite financial exploitation.
Free-Market Analysis: Ellen Brown is back with another of her brilliant yet flawed analyses of the modern financial scene.
Her idea, which she admits is not entirely original, is that the international debt paradigm is starting to change dramatically, to the further detriment of the developing world. She points to Argentina as an example of how the West's debt exploitation is growing grimmer and more invasive.
The upside for Argentina was captured by President Fernandez in a nationwide speech on August 19th. Struggling to hold back tears, according to Bloomberg, she said: "When it comes to the sovereignty of our country and the conviction that we can no longer be extorted and that we can't become burdened with debt again, we are emerging as Argentines. …
"If I signed what they're trying to make me sign, the bomb wouldn't explode now but rather there would surely be applause, marvelous headlines in the papers. But we would enter into the infernal cycle of debt which we've been subject to for so long. "
… The deeper implications of that infernal debt cycle were explored by Argentine political analyst Adrian Salbuchi in an August 12th article titled "Sovereign Debt for Territory: A New Global Elite Swap Strategy." Where territories were once captured by military might, he maintains that today they are being annexed by debt.
The still-evolving plan is to drive destitute nations into an international bankruptcy court whose decisions would have the force of law throughout the world. The court could then do with whole countries what US bankruptcy courts do with businesses: sell off their assets, including their real estate. Sovereign territories could be acquired as the spoils of bankruptcy without a shot being fired.
Global financiers and interlocking megacorporations are increasingly supplanting governments on the international stage. An international bankruptcy court would be one more institution making that takeover legally binding and enforceable. Governments can say no to the strong-arm tactics of the global bankers' collection agency, the IMF.
An international bankruptcy court would allow creditors to force a nation into bankruptcy, where territories could be involuntarily sold off in the same way that assets of bankrupt corporations are. For Argentina, says Salbuchi, the likely prize is its very rich Patagonia region, long a favorite settlement target for ex-pats.
When Argentina suffered a massive default in 2001, the global press, including Time and The New York Times, went so far as to propose that Patagonia be ceded from the country as a defaulted debt payment mechanism.
This is startling stuff and Ms. Brown's analysis of the changing face of country defaults is likely prescient. (As usual, she gets a lot right.) She's calling attention to a disturbing elite trend of suggesting the use of Western jurisprudence to expand international debt collections – and to treat whole countries as quasi-private debtors.
She goes into detail by citing an article called "Debt for Territory" that suggests Argentina officials had once considered swapping government land holdings for debt relief. "[T]he idea would be to transform our public debt default into direct equity investment in which creditors can become land owners where they can develop industrial, agricultural and real estate projects…"
In 2002, IMF deputy manager Anne Krueger published an article entitled "Should Countries Like Argentina Be Able to Declare Themselves Bankrupt?" Brown cites the following quote from Krueger: "The lesson is clear: we need better incentives to bring debtors and creditors together before manageable problems turn into full-blown crises."
The main presence informing Ms. Brown's article is the economist Adrian Salbuchi who has written extensively on Argentina's debt problems. In "Breaking Free from the Sovereign Debt Trap," she writes that Salbuchi traces Argentina's debt crisis back to 1955, "when President Juan Domingo Perón was ousted in a very bloody US/UK/mega-bank-sponsored military coup."
Perón was hated for his insistence on not indebting Argentina with the mega-bankers: in 1946 he rejected joining the International Monetary Fund (IMF); in 1953 he fully paid off all of Argentina's sovereign debt. So, once the mega-bankers got rid of him in 1956, they shoved Argentina into the IMF and created the "Paris Club" to engineer decades-worth of sovereign debt for vanquished Argentina, something they've been doing until today.
Many countries have been subjected to similar treatment, as John Perkins documents in his blockbuster exposé Confessions of an Economic Hit Man. When the country cannot pay, the IMF sweeps in with refinancing agreements with strings attached, including selling off public assets and slashing public services in order to divert government revenues into foreign debt service.
Even without pressure from economic hit men, however, governments routinely indebt themselves for much more than they can ever hope to repay. Why do they do it? Salbuchi writes: Here, Western economists, bankers, traders, Ivy League academics and professors, Nobel laureates and the mainstream media have a quick and monolithic reply: because all nations need "investment and investors" if they wish to build highways, power plants, schools, airports, hospitals, raise armies, service infrastructures and a long list of et ceteras . . .
This is where Ms. Brown's article starts to go off the rails, in our humble opinion. As we've pointed out, there's no mystery about why "governments indebt themselves." The IMF/World Bank tag team was surely developed for the purpose of creating and then exploiting this propensity.
World Bank executives are exquisitely aware of the level of corruption in the developing world. They know that if they offer the top men of any administration an opportunity for a proverbial "cash out" the temptation will likely prove too much. In other words, what the World Bank does is a form of institutionalized corruption. It has been developed to load up the top men with cash that does not generate a proper return but is instead removed from country coffers and relocated in foreign bank accounts.
Eventually, the country's parlous state is revealed and the fingerpointing begins. Before it is all over, the IMF has suddenly turned up, offering to throw good money after bad but only if a strict "austerity" is program is introduced. Government is put on a diet, benefits reduced, taxes raised and public assets sold off to Western multinationals.
None of this is likely by accident. The IMF, World Bank and other globalist facilities were all created after World War II and have operated in crony-like fashion from inception. Ms. Brown rightly criticizes the way the IMF and World Bank undermine country finances. But her "solution" is most questionable, from our point of view.
She wants to use the same kinds of mechanisms that have caused the trouble to provide solutions. Chief among Ms. Brown's solutions are a variety of federal and local public banks – all busily printing money-from-nothing just the way the current crop of monopoly central banks does. The difference is, according to Ms. Brown, that once a bank is "publicly" run, it will serve as a model of probity.
The monopoly fiat paper it prints will be dedicated to "spending … on the tangible capital formation that increases physical productivity. She observes that Salbuchi has reached conclusions similar to hers: "Governments ought to issue the money they need directly."
She then segues into what has become her hallmark solution, that: "Public banks generate credit just as private banks do; but unlike private lenders, they return interest and profits to the economy. Their mandate is to serve the public, and that is where their profits go."
What this ignores, of course, is that monopoly money printing in "public" hands is subject to the same inflationary pressures as money printed by quasi-private central banks. Public or "private" monopoly money printing lacks competition and market pricing. There is no way to know "how much is too much" – and thus, the virulent and ultimately ruinous business cycle is apt to continue.
Public banking is no panacea, though Ms. Brown cites the "public" Chinese central bank among others as "successful." With China building whole empty cities in an attempt to sop up a tidal wave of printed currency, the designation of China as "successful" seems questionable to say the least.
Other central banks she cites as successful include Russia and Japan. But Russia's economy is highly distorted and dependent on one main commodity: Oil. As for Japan, well … that country has been operating within the parameters of what seems to be a controlled depression for several decades now. This is better … how?
Ms. Brown ends her article by warning that as countries remove themselves from the "oil- and weapons-backed US dollar as global reserve currency" destructive currency wars loom. And here are her last words: "To resolve the mutually-destructive currency wars will probably take a new Bretton Woods Accord."
Bretton Woods! Good Lord, this Accord was authored by exactly the same people who created the IMF, World Bank and the current "private central bank" facilities that Ms. Brown seems to deplore.
How she can write a whole article criticizing the system and then end by endorsing the people – and the agreement – that made it possible is beyond us. We've noticed she has an uncanny knack for holding two entirely opposite points of view in her head, and this article doesn't disappoint.
The "solution" to the current destructive system is to get rid of it, not put it further under the control of politicians and corrupt government officials.