(February 16, 2011) In January, the bankers and corporate executives at the World Economic Forum (WEF) in Davos, Switzerland, presented a plan to create $100 trillion US dollars (about €700 billion or ¥7 trillion) in new international debt.
During the last decade, world debt nearly doubled from $57 trillion to $109 trillion. Banks created ‘toxic assets’, ‘mortgage derivatives’ and ‘default swaps’ without substantial collateral to back them up. These schemes made bankers very rich, but helped collapse the world financial system 18 months ago. Public taxpayers have since bailed these bankers out with about $11 trillion in new debt. Now the financiers want more.
As some economies slightly recovered, energy prices rose to trigger inflation, slowing real recovery. Thus, the WEF bankers published ‘More Credit, Fewer Crises’, proposing that the world double its debt once again to $210 trillion by 2020. This debt would be over three times the entire world annual economy.
This debt, the printing of new money based on nothing substantial, has profound impacts on society and nature through resource inflation, the rising costs of food and energy, conflict, fraud and ecological destruction.
Out of thin air
These bankers are not proposing to loan their money to the world. Rather, they propose creating new money out of thin air, likely through International Monetary Fund (IMF) ‘Special Drawing Rights’, a synthetic currency beyond the control of any sovereign nation. By loaning currency rights to national treasuries, the bankers create $100 trillion with a few computer keyboard strokes. Then, they loan the fabricated money, collect interest payments and demand the principal back in real money from the debtors. It’s a lucrative scheme if you’re on the inside.
What bankers call ‘Credit’ the rest of world experiences as ‘Debt’ owed to the bankers. Interest payments alone on $100 trillion debt (at a modest 5% annual rate) comes to $400 billion a month. However, as the ‘Drawing Rights’ pass down the chain of international, national and local banks to become money in the hands of enterprising citizens, the total interest and fees to banks will be higher, perhaps 9 or 10%.
Furthermore, banks expect the principal back. To retire these debts over the next 20 years, the world’s borrowing enterprises would have to pay the bankers about $1 trillion a month. At the end of 20 years, bankers would have received about $140 trillion in interest payments and fees, plus the $100 trillion principal that they originally created out of thin air: $240 trillion profit (€175 trillion Euro, ¥1.5 quadrillion) for creating money out of nothing.
The authors of the WEF debt proposal are executives from JP Morgan, Credit Suisse, Rothschild & Cie, Deutsche Bank, Morocco’s Attijariwafa Bank, Russia’s Sberbank, China’s International Capital Corp., Shell Oil, Takeda Pharmaceuticals, BNP Paribas and other international bankers, corporate capital funds and national sovereign funds. These firms naturally stand to profit from the plan.
Even if some loans pass through the gauntlet of fraud and corruption to reach enterprising citizens, who create useful products and services for their communities, a harsh social and biophysical impact remains for communities and environments around the world. The quarter-quadrillion dollars that would be paid back to the banks becomes an endless debt burden for every project and every nation.
In the end, this debt-creation represents a massive transfer of wealth from global citizens to the world’s richest people. However, there is more.
The cost of debt
Forty years ago, Greenpeace was founded to campaign for peace and ecology. Today, Greenpeace continues those campaigns while working with communities around the world to retain civil rights and local autonomy. Massive debt undermines each of these social values:
Since this money is illusory, created from nothing, it dilutes all world currency and makes all citizens poorer through inflation. We have seen this in the last few months, as food and energy inflation has soared, caused by the last $11 trillion of debt imposed on the world to save the banks from economic collapse. The proposed $100 trillion of new money would have ten times the inflation impact.
Debt causes inflation, inflation acts as a tax on the poor and this leads to civil unrest. The Commodity Research Bureau food price index rose 44% this year and 22% in the last two months. In December, food prices in India rose 16% in three days. In Indonesia, rice prices rose 30% last year. In relatively rich Western Europe and North America families spend 12 to 15% of their income on food. In Egypt last year, families spent 40% of their income on food. The civil uprisings in Tunisia and Egypt began as food inflation crises. Eastern Europe, China, Jordan and Sudan face similar food-inflation unrest.
Inflation, linked to the creation of un-backed money and debt, taxes the poor most severely. We will discover that debt also leads to the depletion of resources, soil erosion, water shortages and other environmental impacts that further advance inflation and the debt cycle.
2. Ecological destruction
Nations must account for both private and public debt because during economic crisis, companies often default and private debt becomes public. Many countries now possess public and private debt three to four times their annual gross economy. The UK debt is six times its gross economy and Iceland 12 times. Massive debts put pressure on countries to expand their economies, but they are caught in a vicious cycle. Debt depresses growth, so nations relax environmental laws to increase industrial projects, corporate profits and tax revenues to pay off the debt.
Debt pressure drives nations deeper into the ocean for oil and gas and deeper into wilderness for minerals. Desperate nations bulldoze forests for cash crops, dam rivers and burn coal for energy, open parks to mining and logging and obliterate national treasures to create cash to pay interest on debts.
In Canada, where I live, our public and private debt stands at about two-and-a-half times our annual economic production. To grow our economy at all costs, our government opened the boreal plains to tar sands production, reduced environmental standards and created one of the world’s most ecologically destructive industries. The tar sands project devastates local indigenous communities, drains aquifers, pollutes groundwater, destroys rare habitats, fills lakes with black sludge and heats the atmosphere with low-net-energy hydrocarbons.
Environmental destruction makes the debt cycle ever more vicious, as depleted environments provide less economic potential and rob indigenous and rural communities of self sufficiency. Governments may then find it expedient to suppress angry citizens who have lost their local economic base.
3. Human rights
A large portion of international debt goes to corrupt dictators, who restrain public resistance by suppressing human rights. In Odius Debt, Patricia Adams documents the human rights impact of debt. One third of World Bank loans over 65 years ended up in the private hands of dictators and corrupt officials through bid-rigging, bribes, kickbacks and outright theft.
Over the last 50 years, 20 to 30% of all developing nation debt has gone to dictators such as Zaire’s Mobutu Seko, the Philippines’ Ferdinand Marcos, Indonesia’s Suharto, Saudi Crown Prince Abdullah and Turkmenistan’s Saparmurat Niyazov. The banks often justify loans to tyrants because they are ‘allies’ of rich western nations. Mobutu stole billions of dollars loaned to Zaire; he jailed, tortured and killed political opposition and enslaved his own citizens. When International Monetary Fund (IMF) agent Edwin Blumenthal reported the loan theft and ‘sordid and pernicious corruption’, the IMF ignored him and awarded Zaire the largest African loan in history. Patricia Adams estimates that Ferdinand and Imelda Marcos pocketed one third of all loans to the Philippines during their regime. Once these dictators fall, the banks expect their victims to repay the loans.
Loans to corrupt dictators will likely get worse with the new SDR credits, set to be awarded by the IMF without even basic safeguards. The Wall Street Journal warns that ‘all governments qualify, including those that lock political dissidents in dungeons and steal from their own people’.
Cephas Lumina with the UN Human Rights Council, reports that private ‘vulture funds’ buy the defaulted debts of poor nations ‘at deeply discounted prices’ and then seek ‘repayment of the full value through litigation, seizure of assets and political pressure’. In the last 10 years, 12 nations designated as Heavily Indebted Poor Countries have been served with 54 lawsuits by such debt profiteers.
Some African nations spend 40% of government budgets on debt service, draining money from much needed health and education, which average about 14% of budgets. Debt breeds poverty.
We can see that the current structure of international debt creates inflation, poverty, fraud, oppression and environmental destruction. Finally, through currency and resource crises, debt fuels war. The world, while increasing debt, spends over $2 trillion each year on military and warfare, exacerbating the vicious debt cycle.
Sudan dictator Omar Al-Bashir, for example, received loans from the World Bank, China and others, helping finance Sudan’s 20-year civil war, causing 2 million deaths and creating 4 million refugees. Meanwhile, Al-Bashir’s army bombed innocent villages, tortured and massacred opposition and kidnapped citizens, particularly in the rich oil-producing regions of Sudan.
The US meanwhile spends about $12 billion each month to wage war in Iraq and Afghanistan, to secure oil fields and pipeline routes. European nations, Russia, China and others have waged war to ‘protect national interests’, particularly dwindling resources. These large countries also arm the dictators that hold their debt, enabling more war and bloodshed.
Into this powder keg of corruption, violence, war, oppression, fraud and ecological devastation, a few wealthy bankers want to inject another $100 trillion of debt burden on the world. Their scheme would not create ‘less crisis’ as they claim, but more crisis, more financial bubbles, more corruption, more dictators, more war, more ecological destruction, inflation and poverty.
Alternatives exist. The poor nations of the world indeed need and deserve support to help develop their economies that have been wracked by colonialism, war and resource plunder. The UN should manage international debt, base all money on real assets and return profits to the human community. Loans can be designed to support local enterprise, solutions that benefit local communities, sustainable farming that protects soil and localised self-sufficiency. The current international banking schemes undermine these community values.
Good economics will be good for everyone, not just enrich the wealthiest people on Earth.
Rex Weyler, Greenpeace, February 16, 2011
Categories: Odious Debts