02/16/2015 archive

Speaking of the lesser evil, while there are many things to hate Vladimir Putin for, the Ukrainian Civil War does not appear to be one of them.

One year after the fascist coup that overthrew the elected government of Viktor Yanukovych it is clear that it was engineered with at least the tacit complicity of the United States and the CIA.  Since then Russia has reclaimed the Crimean Military District (and what genius decided Russia would give up its only warm water port, Sevastopol?) and the Kiev regime has been unable to reestablish control of the secessionist Donbass region, center of most of its heavy industry and coal mining.

The attempt to quell this insurrection has been extremely costly and now Kiev is seeking financial assistance from the EU and IMF.  Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, argues that this will result in the fire sale of assets to Western Plutocrats in accordance with Neo-liberal plans for financial hegemony, but may also backfire on the very same people who instigated it.

Transcript

Ukraine Denouement – The Russian Loan and the IMF’s One-Two Punch

by Michael Hudson, Naked Capitalism

Posted on February 16, 2015

The fate of Ukraine is now shifting from the military battlefield back to the arena that counts most: that of international finance. Kiev is broke, having depleted its foreign reserves on waging war that has destroyed its industrial export and coal mining capacity in the Donbass (especially vis-à-vis Russia, which normally has bought 38 percent of Ukraine’s exports). Deeply in debt (with €3 billion falling due on December 20 to Russia), Ukraine faces insolvency if the IMF and Europe do not release new loans next month to pay for new imports as well as Russian and foreign bondholders.

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How much of Ukraine’s budget will be spent on arms? Germany and France made it clear that they oppose further U.S. military adventurism in Ukraine, and also oppose NATO membership. But will Germany follow through on its threat to impose sanctions on Kiev in order to stop a renewal of the fighting? For the United States bringing Ukraine into NATO would be the coup de grace blocking creation of a Eurasian powerhouse integrating the Russian, German and other continental European economies.

The Obama administration is upping the ante and going for broke, hoping that Europe has no alternative but to keep acquiescing. But the strategy is threatening to backfire. Instead of making Russia “lose Europe,” the United States may have overplayed its hand so badly that one can now think about the opposite prospect. The Ukraine adventure turn out to be the first step in the United States losing Europe. It may end up splitting European economic interests away from NATO, if Russia can convince the world that the epoch of armed occupation of industrial nations is a thing of the past and hence no real military threat exists – except for Europe being caught in the middle of Cold War 2.0.

For the U.S. geopolitical strategy to succeed, it would be necessary for Europe, Ukraine and Russia to act against their own potential economic self-interest. How long can they be expected to acquiesce in this sacrifice? At what point will economic interests lead to a reconsideration of old geo-military alliances and personal political loyalties?

The is becoming urgent because this is the first time that continental Europe has been faced with such war on its own borders (if we except Yugoslavia). Where is the advantage for Europe supporting one of the world’s most corrupt oligarchies north of the Equator?

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IMF loans are made mainly to enable governments to pay foreign bondholders and bankers, not spend on social programs or domestic economic recovery. Sovereign debtors must agree to IMF “conditionalities” in order to get enough credit to enable bondholders to take their money and run, avoiding haircuts and leaving “taxpayers” to bear the cost of capital flight and corruption.

The first conditionality is the guiding principle of neoliberal economics: that foreign debts can be paid by squeezing out a domestic budget surplus. The myth is that austerity programs and cuts in public spending will enable governments to pay foreign-currency debts – as if there is no “transfer problem.”

The reality is that austerity causes deeper economic shrinkage and widens the budget deficit. And no matter how much domestic revenue the government squeezes out of the economy, it can pay foreign debts only in two ways: by exporting more, or by selling its public domain to foreign investors. The latter option leads to privatizing public infrastructure, replacing subsidized basic services with rent-extraction and future capital flight. So the IMF’s “solution” to the deb problem has the effect of making it worse – requiring yet further privatization sell-offs.

This is why the IMF has been wrong in its economic forecasts for Ukraine year after year, just as its prescriptions have devastated Ireland and Greece, and Third World economies from the 1970s onward. Its destructive financial policy must be seen as deliberate, not an innocent forecasting error. But the penalty for following this junk economics must be paid by the indebted victim.

In the wake of austerity, the IMF throws its Number Two punch. The debtor economy must pay by selling off whatever assets the government can find that foreign investors want. For Ukraine, investors want its rich farmland. Monsanto has been leasing its land and would like to buy. But Ukraine has a law against alienating its farmland and agricultural land to foreigners. The IMF no doubt will insist on repeal of this law, along with Ukraine’s dismantling of public regulations against foreign investment.

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A generation ago the logical future for Ukraine and other post-Soviet states promised to be an integration into the German and other West European economies. This seemingly natural complementarity would see the West modernize Russian and other post-Soviet industry and agriculture (and construction as well) to create a self-sufficient and prosperous Eurasian regional power. Foreign Minister Lavrov recently voiced Russia’s hope at the Munich Security Conference for a common Eurasian Union with the European Union extending from Lisbon to Vladivostok. German and other European policy looked Eastward to invest its savings in the post-Soviet states.

This hope was anathema to U.S. neocons, who retain British Victorian geopolitics opposing the creation of any economic power center in Eurasia. That was Britain’s nightmare prior to World War I, and led it to pursue a diplomacy aimed at dividing and conquering continental Europe to prevent any dominant power or axis from emerging.

America started its Ukrainian strategy with the idea of splitting Russia off from Europe, and above all from Germany. In the U.S. playbook is simple: Any economic power is potentially military; and any military power may enable other countries to pursue their own interest rather than subordinating their policy to U.S. political, economic and financial aims. Therefore, U.S. geostrategists view any foreign economic power as a potentially military threat, to be countered before it can gain steam.

We can now see why the EU/IMF austerity plan that Yanukovich rejected made it clear why the United States sponsored last February’s coup in Kiev. The austerity that was called for, the removal of consumer subsidies and dismantling of public services would have led to an anti-West reaction turning Ukraine strongly back toward Russia. The Maidan coup sought to prevent this by making a war scar separating Western Ukraine from the East, leaving the country seemingly no choice but to turn West and lose its infrastructure to the privatizers and neo-rentiers.

But the U.S. plan may lead Europe to seek an economic bridge to Russia and the BRICS, away from the U.S. orbit. That is the diplomatic risk when a great power forces other nations to choose one side or the other.

Ian Welsh makes basically the same argument.

Russia Creates Its Own Payment System

by Ian Welsh

2015 February 15

Much of the West’s power comes from our financial hegemony. Our ability to cut people off from loans, payments and so on.  Since this new system is Russian only, it isn’t, right now, that big a deal.

But start connecting other countries to it, say China, Iran, India and so on, and it becomes a way of breaking financial blockades.  Include some calculable financial law (less of a challenge than it used to be as New York and London courts make increasingly punitive decisions), and start lending in Yuan (with which one can buy much of what one needs in the world, since the Chinese make so much of it), and you have a fully credible financial system.

The key is to get one major manufacturing country in.  Most of the nations the West is punishing these days, financially, are oilarchies ( Venezuela, Iran, Argentina).  They need the ability to buy manufactured goods.  The obvious country is China.  If China agrees to go in, Western financial hegemony is broken.

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Even before then there are deals which can be cut.  Say Greece wants to buy Russian oil.  Russia can lend them Rubles, the use those rubles to buy Russian oil, in exchange Russia gets use of Greek ships and ports and access to the EU.

This is, then, in one sense, not a big deal.  As long as its only Russia, it’s a defensive move of somewhat limited utility.

But if it expands beyond Russia, well then, it’s earth-shaking.

Why We Should Want the Return of a Two World System

by Ian Welsh

2015 February 16

Before the collapse of the Soviet Union, there was a two-world system. If you didn’t like the deal that US was offering you, you could go the USSR.  If you didn’t like the deal Russia was offering you could go to the US.

While the US probably offered a better deal, especially in later years, you could have a pretty decent life as a client state to the Soviets.  Cuba under Castro had a higher standard of living in practically every way than it did pre-Castro, when it was an American client state.

Equally, you could play the two off against each other, looking for the best deal.  This made it harder for them to screw you over.

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So the creation of a Russian SWIFT, while woefully inadequate by itself, was a first step towards meeting one of the needs of a new bloc with rivals the West.

The linchpin nation in any new bloc would be China.  China can credibly provide development, credit and consumer goods (they make much of them anyway.)  But China will also need countries which can supply oil and raw materials: Russia, Venezuela, Iran,  Argentina, and so on.  Much of South America would rather sell food and raw materials to China (or Russia, or whoever) than to the US, because they remember, well, not being treated very well by America during and after the Cold War.

Russia’s military technology, while not as good as America’s, is good enough for most purposes, and China, as is usually the case, has vast amounts of shipbuilding capacity for those who want a navy.  America’s space program is charging forward (mostly privately) but Russia still has plenty of lift capacity for satellites, and China is working hard on its space program.

The BRICS have created their own development bank, as well, so combined with an expansion of the new SWIFT, credit which can be used to buy almost anything you want, or need, will be available.

This, my friends, is the configuration in which the unipolar moment (which has lasted two and a half decades so far) ends.

It was always going to end, for all things do, the question was how soon.  American actions have accelerated what should have taken a couple decades more, significantly, by marginalizing too many countries.  Marginalizing or destroying the occasional country was acceptable, but the number marginalized is just too high, and they have too many resources.  Combined with a great manufacturing nation, they have essentially everything they need: they don’t need the West.

And they may be wondering why they are paying intellectual property taxes (that’s what they are) and interest fees to the West, when the West clearly isn’t acting in their interest.  Why have America and Britain gain all this, when they can reap the money themselves.

Oh, there are still some areas where the West is clearly ahead, from turbines to aerospace.  But they tighten by the year, and they aren’t anything necessary any more. Virtually everything you want, save a few luxury items, you can get without America or Europe being involved.

The question now, then, is the timing and the exact events.  But the broad outline is visible and will accelerate, because it is in too many countries self-interest.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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New York Times Editorial Board: How to Force Prosecutors to Play Fair

When prosecutors cheat and lie repeatedly to win convictions, should their office be held accountable?

When a man spends years, or decades, in prison as a result of such prosecutorial misconduct, should he be compensated?

These are not trick questions.

And yet in a bizarre 2011 ruling, five justices of the Supreme Court managed to answer no to both, essentially closing off (pdf) one of the only ways to hold prosecutors and their offices liable for wrongdoing.

In a new petition (pdf) before the court, two Louisiana men who were exonerated after 27 years behind bars are asking the justices to review their case and allow them to sue the New Orleans prosecutor’s office for money damages for violating their constitutional rights. If the justices agree to hear the petition, they could undo some of the harm they did in 2011 and help cure what one federal appellate judge has called (pdf) an “epidemic” of prosecutorial misconduct across the country

Paul Krugman: Weimar on the Aegean

Try to talk about the policies we need in a depressed world economy, and someone is sure to counter with the specter of Weimar Germany, supposedly an object lesson in the dangers of budget deficits and monetary expansion. But the history of Germany after World War I is almost always cited in a curiously selective way. We hear endlessly about the hyperinflation of 1923, when people carted around wheelbarrows full of cash, but we never hear about the much more relevant deflation of the early 1930s, as the government of Chancellor Brüning – having learned the wrong lessons – tried to defend Germany’s peg to gold with tight money and harsh austerity.

And what about what happened before the hyperinflation, when the victorious Allies tried to force Germany to pay huge reparations? That’s also a tale with a lot of modern relevance, because it has a direct bearing on the crisis now brewing over Greece.

The point is that now, more than ever, it is crucial that Europe’s leaders remember the right history. If they don’t, the European project of peace and democracy through prosperity will not survive.

I have 3 articles for you this Lundi Gras morning!

First, some dire climate news:

NASA: The US Faces a “Mega-Drought” Not Seen in 1,000 Years

Scientists have bad news for West Coasters in the grips of the worst drought in decades: The worst is yet to come.

The record-shattering drought currently gripping California is a light crudité compared to the “mega-drought” that’s expected to envelop the Southwest and Great Plains over the next 35 years, NASA revealed Thursday. The full study, ominously named “Unprecedented 21st century drought risk in the American Southwest and Central Plains,” was published in Science Advances.

Jump!

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

February 16 is the 47th day of the year in the Gregorian calendar. There are 318 days remaining until the end of the year (319 in leap years).

On this day in 2006, the last Mobile Army Surgical Hospital (MASH) is decommissioned by the United States Army. The Mobile Army Surgical Hospital (MASH) refers to a United States Army medical unit serving as a fully functional hospital in a combat area of operations. The units were first established in August 1945, and were deployed during the Korean War and later conflicts.

The MASH unit was conceived by Michael E. DeBakey and other surgical consultants as the “mobile army surgical hospital.” Col. Harry A. Ferguson, the executive officer of the Tokyo Army Hospital, also aided in the establishment of the MASH program. It was an alternative to the system of portable surgical hospitals, field hospitals, and general hospitals used during World War II. It was designed to get experienced personnel closer to the front, so that the wounded could be treated sooner and with greater success. Casualties were first treated at the point of injury through buddy aid, then routed through a battalion aid station for emergency stabilizing surgery, and finally routed to the MASH for the most extensive treatment. This proved to be highly successful; it was noted that during the Korean War, a seriously wounded soldier that made it to a MASH unit alive had a 97% chance of survival once he received treatment.

The MASH unit made its way into popular culture through the 1968 novel M*A*S*H by Richard Hooker, the 1970 feature film based on the novel, and the long-running television sitcom (1972-1983) based on the movie. A 1953 film, Battle Circus, also took place at a MASH.

MASH units continued to serve in various conflicts including the Vietnam War. In October 1990 the 5th MASH, 44th Medical Brigade, XVIIIth AirBorne Corps, Fort Bragg, North Carolina, deployed to Saudi Arabia and was the first fully functional Army Hospital in country. This unit moved forward six times, always as the first up hospital for the region. In March 1991 the 5th MASH was operationally attached to the 24th Infantry Division to provide forward surgical care (often right on the front battle lines) to the combat units that attacked the western flank of Iraqi Army. In March 1991, the 159th MASH of the Louisiana Army National Guard operated in Iraq in support of the 3rd Armored Division during Operation Desert Storm.

In 1997, the last MASH unit in South Korea was deactivated. A deactivating ceremony was held in South Korea, which was attended by several members of the cast of the M*A*S*H television series, including Larry Linville (who played Frank Burns), and David Ogden Stiers, (who played Charles Winchester). MASH units have since been replaced by the U.S. Army’s Combat Support Hospitals.

Worldwide, the last MASH unit was deactivated on October 16, 2006. The 212th MASH – based in Miesau Ammo Depot, Germany – was the first U.S. Army hospital established in Iraq in 2003, supporting coalition forces during Operation Iraqi Freedom. It was the most decorated combat hospital in the U.S. Army, with 28 Campaign streamers on the organizational colors. The 212th MASH’s last deployment was to Pakistan to support the 2005 Kashmir earthquake relief operations. The U.S. State Department bought the MASH’s tents and medical equipment, owned by the DoD, and donated the entire hospital to the Pakistani military, a donation worth $4.5 million.

The 212th MASH’s unit sign now resides at the Army Medical Department’s Museum in San Antonio, Texas.

MASH in M*A*S*H

Out of necessity, the “4077th MASH” unit depicted in the television series was considerably smaller than many of the MASH units deployed by the United States in the Korean War. In the series, about four surgeons depicted as being assigned to the unit, the administrative staff consists of the C.O. and his assistant, and few soldiers were shown to be present. By comparison, the 8063rd Mobile Army Surgical Hospital had personnel including twelve nurses, eighty-nine enlisted soldiers of assorted medical and non-medical specialties, one Medical Service Corps (MSC) officer, one Warrant Officer and ten other commissioned officers of assorted specialties. On one occasion, the unit handled over 600 casualties in a 24 hour period.

Last week in Washington DC, your Sunday Train correspondent was able to attend the “Future of Rail Symposium” held in Washington DC. The presenters discussed various aspects of building a Steel Interstate corridor, including the Steel Interstate concept, a discussion of electrified rail around the world, why rely on electricity rather than LNG for major backbone corridors, the engineering and economics of electrification in North America, an approach to financing an initial Steel Interstate corridor without requiring new legislation to be passed through our gridlocked Federal government, vehicle and track considerations of the “Rapid Freight” rail component of the Steel Interstate, the labor dimension and the need for a new social contract with Rail Labor, and a final presentation on the “Solutionary Rail” proposal by the Backbone Campaign to establish a Steel Interstate on the BNSF Northern Transcon corridor.