Stiglitz: Capitalist Fools

[Rajiv]

Stiglitz: Capitalist Fools

Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion.

by Joseph E. Stiglitz January 2009

Treasury Secretary Henry Paulson and former Federal Reserve Board chairman Alan Greenspan bookend two decades of economic missteps. Photo illustration by Darrow.

There will come a moment when the most urgent threats posed by the credit crisis have eased and the larger task before us will be to chart a direction for the economic steps ahead. This will be a dangerous moment. Behind the debates over future policy is a debate over history—a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it’s crucial to get the history straight.

What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road—we had what engineers call a “system failure,” when not a single decision but a cascade of decisions produce a tragic result. Let’s look at five key moments.
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[D-Mack]

Re: Stiglitz: Capitalist Fools

I know that Stiglitz wrote a book about making globalization work, but I simply don't get the love for Volcker.

Isn't it a bit simple to start with Reagan and leave out the whole Bretton Woods / Gold thing ?

The 1971 dollar coup

Despite all the manipulations, by 1971 US monetary gold reserves had reached a precarious low as foreign trade surplus nations, led by France, had demanded payment in hard gold from the US Federal Reserve for their dollar surpluses. Reality could not so easily be manipulated as government statistics. Europe had emerged, along with Japan, as powerful trade surplus, modern, fast-growing economies.

The United States was becoming a vast rustbelt of decaying, obsolescent manufacture. The spin-doctors of Wall Street and select think-tanks such as the Ford and Rockefeller foundations came up with a linguistic euphemism calling it the “post industrial society,” but linguistics did not change the reality. By the late 1960’s America’s once-booming industrial centers from Detroit to Pittsburgh to Chicago had become sprawling slums of decay, crime and rising unemployment.

Were the United States to lose its last gold reserves, the role of the dollar as unique world reserve currency—the pillar, along with US military superiority, of its postwar American Century imperium—would end abruptly.

To avert such a calamity, in August 1971 President Nixon huddled with his closest advisers, among them a US Treasury official named Paul Volcker, then Under-Secretary of the Treasury for International Monetary Affairs, and a long-time associate of David Rockefeller and the Rockefeller family.

Their task was to come up with a solution. Volcker’s “solution” to the massive demand to redeem US dollars for gold was to be as simple as it was to prove destructive to world economic health.

Nixon announced to a startled world on August 15, 1971 that from that day, the United States would not longer honor its international treaty obligations under the Bretton Woods Agreement. Nixon had suspended convertibility of the dollar into gold. The New York Fed’s Gold Discount Window was locked shut. World currencies went into a free float against an uncertain dollar, a so-called fiat currency. The dollar now was not backed by gold or even silver but only the “full faith and credit” of the US government, a commodity whose marketable value was beginning to be questioned.

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The Carter dollar confidence crisis

This second phase, the post-gold era, fuelled by the manipulated 1973 oil shock and US pressure on Saudi Arabia and OPEC to price oil exclusively in dollars, Kissinger’s “petro-dollar recycling,”8 rolled along without major trouble until early 1979 when the dollar faced a major foreign sell-off during the end of the Jimmy Carter Presidency. The American Century faced one of its greatest challenges at that juncture. German, Japanese even Saudi Arabian central banks began dumping US Treasury holdings in what was called a loss of “confidence” in Carter’s world leadership role.

In August 1979, to restore world “confidence” in the dollar, President Jimmy Carter, himself a hand-picked protégé of David Rockefeller’s Trilateral Commission, was forced by the big New York banks, led by David Rockefeller’s Chase Manhattan, to accept Paul Volcker, a protégé of Rockefeller’s from Chase Manhattan Bank, as new Chairman of the Federal Reserve with an open mandate to do what was necessary to save the dollar as reserve currency.

On taking office, Volcker bluntly announced, "the standard of living for the average American has to decline." He was Rockefeller’s hand-picked choice to save the New York financial markets and the dollar at the expense of the nation’s welfare.

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The Volcker ‘shock therapy’

Volcker’s shock therapy, begun in October 1979, lasted until August 1982. Interest rates shot through the roof to double digits. The US and world economies were plunged into a monster recession, the worst since World War II. Within a year, the prime rate had shot up to the unheard-of level of 21.5%, compared to an average of 7.6% for the fourteen previous years, a more than threefold rise in weeks. Official US unemployment peaked at 11%, while unofficially when those who simply had given up seeking work were counted, it was far higher.

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http://www.globalresearch.ca/index.p...xt=va&aid=7813

[Spartacus]

Re: Stiglitz: Capitalist Fools

Treasury Secretary Henry Paulson and former Federal Reserve Board chairman Alan Greenspan bookend two decades of economic missteps. Photo illustration by Darrow.

bookEND? END? Isn't Stiglitz jumping the gun?

The mistake-making is FAR from over.
The erroneous are still running the show, calling the plays, pulling the strings.

[we_are_toast]

Re: Stiglitz: Capitalist Fools

Nice find Rajiv! Excellent!