30th September 2010, 03:23 pm by Stan

HILLARY’S BONES

“Why has there never been a coup in Washington DC?” “There’s no US Embassy there.” -Latin American joke

Introduction to a Different Story



This is a story, based on some facts… different than the stories we hear from the media. Facts can be arranged to make a story. The media had one story. This is another.

On June 28th, 2009, President Manuel Zelaya of Honduras was dragged out of bed in his pajamas by Honduran soldiers, bound and beaten , flown out of Honduras using the US military’s Soto Cano airfield, and sent into exile. There was immediate and universal condemnation of the coup, including from the United States. President Barack Obama condemned the coup. So did Secretary of State Hillary Clinton. The story faded from the news. The Hondurans had some kind of election. Everything is okay now.

That is the general impression, among people in the US, of what happened, at least for those North Americans who may know where Honduras is.

This story is different, different than that story.

In this story, a powerful public/private alliance, which included the government of the United States of America, not only had prior knowledge of the coup, it was deeply involved in the planning and execution of it. The head of the principle government agency involved in this coup d’etat was Secretary of State Hillary Clinton.

Coming of age in mafia-speak, they say a real thug “makes his bones” with his first murder. Hillary made her coup-bones in Honduras. And that included a lot of murders.

To tell this story, we will need two other stories as mirrors, or analogs. Those are the stories of the two previous coups with US State Department involvement – the 2002 failed coup against President Chavez’s government in Venezuela, and the 2004 successful coup against President Aristide’s government in Haiti.

The story has a cast of characters that revolve through a cast of institutions. It has a weirdly named theme called neoliberalism, and a plot embedded in a Latin American setting.

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As with all good stories, there are stories within stories. Behind this story of a coup d’etat against an elected government in Honduras is the story of other recent coups and how the same people in the United States who are associated with the coup in 2009 seem to be a constant over time.

The story within that story is that this is a decidedly Republican coup apparatus, directed by Democratic Secretary of State Hillary Clinton in the service of Democratic President Barack Obama.

The details are important, but so is the more essential dynamic of Great People, whose ruthlessness and narcissism is made whole in the misery of unseen and uncounted others.

Martin Buber, writing in Good and Evil, makes the point that with the knowledge of the good comes the capacity for evil. And he centers his assertion on the unique capacity of humans, differentiating themselves now from other creatures, to lie. The lie is the servant of power; and power is what breaks the proper covenant between human beings.

This is a story about that big topic. It is about lies and power. The names and circumstances change, but this story has been around a long time.

Background – Neoliberalism

What is neoliberalism and why should we care? We’re talking about a coup, right?

Answer: The coup in Honduras is the visible top of an iceberg. Neoliberalism is the much larger mass holding the visible part out of the water.

The L-Word

Neoliberalism is not the central thesis of this blog-book. Describing it is, however, necessary to discern the motives of the US government and of the international business class that has the greatest influence on it.

Unraveling a coup d’etat is like a detective story. The first thing the detective has to figure out in a detective story is “where am I? How do things generally work around here?”

Like detective stories, coups happen in settings, and not just physical settings, but places that operate by their own internal logics. In a good P. D. James novel (a redundant phrase in my opinion), her main character has to first figure out the social hieroglyphic that operates under the surface and really moves the plot along. Our setting is neoliberalism.

The term “neoliberalism” is not common among Americans, but it is well known and well-understood outside the United States. It confuses people from the US because the popular understanding of the word “liberal” is one half of the way we are taught to think about politics. Our political world is embodied in the “liberal vs. conservative” dipole, which in political discourse represents a very narrow range.

Neoliberalism is the wider range that contains both. The “liberal” in neoliberal actually includes both conservatives and liberals as we commonly understand them.

This word began with a different inflection than we give it in popular culture, and the term neoliberal is based on that old definition, not the popular one we have today. Just bear in mind as you read, “liberal” here is very close to what you think of popularly as “conservative,” and it makes more sense.

The “neo,” or “new” affixed to the word refers to a political and economic practice that took root with the Reagan administration and has continued through both Republican and Democratic administrations ever since. Philip Cerny explains:

Originally a label for a new form of nationally rooted transatlantic conservatism in the late 1970s and 1980s, neoliberalism was at first embodied primarily in the politics of Prime Minister Margaret Thatcher and the Conservative Party in the United Kingdom (UK) and of President Ronald Reagan and the Republican Party in the United States (US). It has often been seen as a revival of what has sometimes been called “classical liberalism” or “19th century liberalism” – i.e., a return to purer laissez faire principles and the ideology (and economic theory) of the self regulating market. However, this is an oversimplification. Neoliberalism in its varieties, “free market conservative, neoliberal structuralist and neoliberal regulationist,” paradoxically includes an active role for the state in designing, promoting and guaranteeing the free and efficient operation of the market – a kind of imposed laissez faire somewhat analogous to Rousseau’s image of people being “forced to be free.”

Cerny goes on to make the key distinction between classical liberalism’s assumptions and those of neoliberalism.

Unlike classical liberalism, however, it is not assumed that markets necessarily work in an efficient, spontaneous and automatic – self-regulating – manner unless they are strongly embedded in premarket rules, institutions and politics.

These “pre-market” rules, institutions, and politics are the carriers of neoliberalism, and they have a character that is historically unique. Let’s look at what this neoliberal social architecture is and what it has managed to accomplish in the service of power.

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The Mobile Redistribution of Accountability Trick

Neoliberal theology asserts the primacy of the private, the value of small government; but neoliberal practice has been massively subsidized and legally protected from public accountability by the state. Without the state’s affirmative actions on behalf of the international business class, the system would collapse. Fast. Begin by thinking about how many battle groups from the US Navy are required to ensure the flow of fossil hydrocarbons into the industrialized metropolis, and you can extrapolate from there.

One of the key advantages of the public-private partnership that is neoliberalism is insulated from accountability to those below those institutions on the social hierarchy. The boundaries are blurred, via contracts and memoranda of understanding, between the US public sector – with its administrative apparatus, and its military and intelligence establishment with their vast budgets – and the private sector, composed of publicly funded “non-governmental organizations” (NGOs), think tanks, foundations, and an army of horizontally-integrated perception managers. Those perception managers have mass media as a conformity-producing web of influence that reaches right into the living rooms of a US culture that has 2.24 television sets, running an average of six hours and 47 minutes a day, 2,476 hours a year. To appreciate the latent power of television, realize that the average college class has a student in tow for three hours a week.

In terms of how the top of the pyramid relates to the base, this public-private alliance has the force of law in addition to a mobile redistribution of accountability. The people on the bottom are excluded from knowing who is the author of anything.

We will see this mobile redistribution of accountability in action with the Honduran coup d’etat. The transnational public-private alliance that authored the coup used this accountability shuffle to checkmate Zelaya and feint past the Organization of American States (OAS). This shell-game of accountability provides a coup alliance with enormous tactical agility. Bear this mobile accountability in mind as you read about the coup itself, in its (a) preparatory phase, its (b) execution phase, and its (c) consolidation phase.

Who’s on First?

The various citations for this essay are available for truly in-depth study, but for our purposes, the essential points of neoliberal policy are:

(1) to reduce obstacles to the penetration of other nations’ trade and capital markets and lock them when possible into debt-dependency,

(2) to establish and enforce neoliberal orthodoxy as the organizing principle of the state,

(3) to minimize “outcome-oriented” state intervention, e.g., poverty reduction, and stress state regulation that encourages economic “growth,” and

(4) to shift emphasis from government (identifiable and therefore subject to account) to governance (control is exercised by a meshwork of public and private agencies, under a regulatory regime, which become less identifiable, i.e., less targetable from below for accountability).

Who benefits from this often impenetrable regulatory regime? From 1983 until 2007, according to a study by sociologist G. William Dumhoff, net worth distribution between the wealthiest quintile (20%) of the population and the other four quintiles combined (80%), changed from 81.3% of the wealth held by the top quintile to 85.1 percent of the wealth. In the same period, the bottom 80% went from holding 18.7% of the wealth to 15%.

Neoliberalism has effected a net transfer of wealth upward, beginning in the late 70s and early 80s. The transfer of wealth from poor countries to rich ones has been even more accelerated. Neoliberalism is the current system to achieve continuity of elite, and imperial, power. But imperial power has always had a core-periphery dynamic, that is, a powerful core — a nation or alliance of nations — that rely on the exploitation of peripheries to maintain their dominance.

Core nation elites value stability, and sharing some of the surplus from exploitations abroad with one’s domestic political base is one way a domestic population is invested in an unequal core-periphery dynamic. A measure of shared imperial privilege across class lines consolidates the core’s political base. It was that way in imperial Rome. It is that way today. An average American — even though well down on the champagne glass as it represents the US population — still consumes vastly more than the average Nigerian or Azerbaijani or Peruvian. They are awarded a share of imperial privilege as a hedge against social unrest.

David Harvey and others note that neoliberalism has effected an enormous transfer of wealth. That fact is necessary but not sufficient to understand the actual character of neoliberalism. Neoliberalism did not emerge as a plot to take from the poor and give to the rich, even though it accomplished this to a remarkable degree. Neoliberalism emerged in response to a deep secular crisis of capitalism, first with the stagflation of the 70s, followed by the Latin American debt crisis of the 80s, followed by the serial catastrophes of the 90s – with Latin America, East Asia, Turkey, Russia – and culminating in the 2000s, with the dotcom bust and the magical exploding real estate bubble that hasn’t finished with us yet. Neoliberalism is embedded in crisis.





Neoloiberalism, for all its triumphal rhetoric about “the end of history” and “there is no alternative,” has actually been a protracted period of capitalist crisis management.

What the United States has managed to do, again and again, is to use its existing power to export its own crises abroad. It has done this by increasing the extraction from peripheral societies – benefiting from extremely unequal exchange – and by exporting everything from price inflation to toxic waste to war back to that same periphery.

There is more than mere individual greed at work. The US business class’ very survival depends on maintaining stability in the imperial cores. The harsh truth for the American business class, however, is that the serial cures for their structural crisis have simply delayed the inevitable and exacerbated the disease.

In Honduras, the attempt to impose stability (after intentionally destabilizing the country) has met with greater social instability than Honduras has experienced in decades, even though we rarely see images of the liberationist movement that has risen in response to the 2009 coup, particularly in the United States.

Images like these are disruptive to the cover story for the coup; and concealment of motives is as essential to a successful coup as guns and money.

The Neoliberal Theology

Two aspects of neoliberalism comprise the background for the coups: its ideology and its practice. Ideology first.

The ideology is the sum of the public arguments in defense of the practice, and the repetition of those arguments until they appear axiomatic.

Ideology is defined as “an orientation that characterizes the thinking of a group or nation,” but the main thing to remember is that successful ideology appears as mere common sense. The claims of ideology are not fashioned to represent actual practices. The purpose of ideology – if public understanding of the practice is likely to engender resistance to power – is to simultaneously conceal that power and ensure that same concealed power’s day-to-day reproduction.

For example, when freedom is defined as a monetary consumer choice, this unquestioned premise conceals the power of the ultimate-winners in this transaction (Wal-Mart, for example, or Chevron) when you exercise this “choice,” and suggests that buying (“choosing”) something is actually a meaningful exercise of personal liberty and empowerment – which encourages people to continue with the same consumption patterns, ensuring the continued power of the ultimate-winners.

The H-Word

The dominant ideology is “hegemonic,” meaning that most people have so internalized the basic assumptions of the ideology that they are seen as “common sense,” placing those assumptions beyond our critical attention. Hegemonic ideas and practices are embedded in culture. Successful ideology is hegemonic ideology. The actual rules no longer require external persuasion or force; they have been extensively internalized by most people as “the way things are.”

Neoliberal arguments, because they are hegemonic, sound very familiar. They are about the hidden hand of the market, and how it shakes society out into a just meritocracy. “Free market” is a kind of benevolent god that we ought to thank for its abundance. And neoliberalism discursively constructs itself as inevitable. Maggie Thatcher’s favored claim, “There is no alternative.” The TINA-fallacy.

Ideological givens are then available to support propaganda – and propaganda is a weapon during military-political operations, like coups d’etat. Propaganda is one weapon in a coordinated attack, and not as representative of any species of truth. Truth is incidental to public pronouncements by governments and institutions. The purpose of official public pronouncements is not representative, but persuasive.

See What They Say – Hear What They Want

President Bush’s suggestions that Iraq was behind the World Trade Center attacks of 2001 was not designed to convey a reality, but to gain either approval or acquiescence from the public for a war. When Secretary of State Hillary Clinton denounced the coup in Honduras, she did so without calling it a coup. This was to ensure that the ultimate outcome – President Manuel Zelaya’s removal – would not be seen as consolidation of the coup (and calling it a coup would trigger the law to cut off US aid to Honduras).

She publicly promised Zelaya that he would be returned to office. This bought time until the coup-makers could finesse the idea of a post-coup election (without Zelaya) was tantamount to “reconciliation and re-commitment to democratic values.”

The public pronouncement was designed to have an effect different from representation of truth. That is why it is a mistake – in basic logic – to give public officials and business people and institutional spokespersons, the presumption of credibility. Yet this is precisely what mass media do with those pronouncements. In order to understand what these pronouncements mean, one has to – like a P.D. James detective – get at the motives.



Isis Obed Murillo, 19, killed by Hondurans soldiers

Key point to remember: When you read or hear public pronouncements by public figures, look at what the words are intended to accomplish. Do not presume they are telling the truth. These pronouncements are crafted in order to gain support for or acquiescence to an agenda.

What’s the Motive?

I find it remarkable that nobody has pointed out that Adam Smith did not say what neoliberals repeat when they count him as their patron saint. His aim, like that of subsequent classical reformers, was to free society from privatized land rent, monopoly rents, and financial interest and fees. -Michael Hudson

Practically, neoliberalism has been the construction of a transnational capitalist alliance – with the US first among equals. Politically and economically, it is a world system now, under the direction of the United States, and based on a combination of the size of the US economy, US military power and disposition, and the dominant position of the US currency in world markets.

In terms of practical emphasis, neoliberal policies have been developed to facilitate interpenetration of national markets. This seems superficially fair until one compares the size of many local enterprises abroad and their capital markets with the size of the transnational corporations that are seeking entry into those markets.

Honduras’ entire GDP for 2009 was $13.34 billion. AT&T’s revenues from 2005 were $69.4 billion. Hondurans will not be buying out AT&T. AT&T, as we will see, did have its eye on Honduras, however.

So the abstract equality between actors in this rules-based regime recalls Anatole France’s acerbic observation, “The law in its majestic equality forbids rich as well as poor from begging in the streets, sleeping under bridges, and stealing bread.”

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Thomas Carlyle called economics “the dismal science.” Dismal is right, and our next subject is as dismal as it is significant. To “”dismal” we might add the adjective “wrong,” since economists have never accurately described what happened in the past, what is happening now, or guessed what might happen in the future. This is science’s purview, and whatever economics is, it is not science. And as dismal and misleading as the topic can be, we have to go there. Because money is at the heart of the whole system.

Neoliberalism is a now the world-system.

World system (definition): a historical and sociological approach to political economy with a belief in the importance of interdependency and the global systemic structure and connected processes. -Paul Imgram

Emphasis on interdependency – all nations now depend on the same system to some degree – and that system’s constituent processes. So as we read along about neoliberalism, we are adopting a framework for analysis that says stay alert for two actors being dependent on each other in different and very unequal ways, and stay alert for things that connect people, places, institutions, and actions on a world stage.

Begin by thinking of the global political economy (a different term than “economics”) as a great meshwork of lines of communication along which which things, people, value, and power move. In this meshwork, as in the webs of some spiders, there is a hub, like the hub on the spokes of a bicycle wheel.

The financial “hub” for the neoliberal world system is Wall Street. All lines go through that hub. And Wall Street eats what it catches. This dominant financial regime is at Wall Street, New York, instead of Tokyo or Paris, because the United States – a territorial political entity – is where the power comes from. This is a nation with an almost $15 trillion annual GDP, and a more expensive military than all the other militaries in the world combined, and bases in a thousand places around the world, spread over 156 nations.

The dollar is the national currency of this behemoth.

The current system combines the power of the United States, and its currency, the dollar, with the power of Wall Street as a transnational actor. The direction this partnership has taken is commonly called “globalization.” A more accurate term might be “global financialization,” about which we’ll go into more detail.

The late Peter Gowan, in his book The Globalization Gamble, refers to the current system as the Dollar-Wall Street Regime. We will use that shorthand the same way he did: to mean the managerial activities of the world system as it is right now.



Peter Gowan

[A] New Wall Street System has emerged in the US during this period [the last three decades], producing new actors, new practices and new dynamics. The resulting financial structure-cum-agents has been the driving force behind the present crisis. En route, it proved spectacularly successful for the richest groups in the US: the financial sector constituted by far the most profitable component of the American and British economies and their most important ‘export’ earner. In 2006, no less than 40 per cent of American corporate profits accrued to the financial sector.

- Peter Gowan

The twin-pillars of this financial regime are:

(1) Wall Street’s global dominance in financial markets, and

(2) the hegemonic position of the US dollar, which allows the US – who holds the most dollars – to run up debts to other countries which is has neither the ability nor the intention of paying.

Wall Street attacks other nation’s currencies as part of this managerial practice, and those attacks have proven catastrophic. Crashing an economy is a powerful message.

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Central banks abroad need to hold dollar-denominated assets as currency reserves. These reserves give the central banks dollars to buy back their own currency if is endangered. Central banks now hold dollar reserves to defend themselves from future speculative attacks on their own currencies.

This effectively ties them to the strength of the dollar. If they sell their dollars down, they wipe out the purchasing power of their own central bank reserves; and when the US decides periodically, which it does, to strategically devalue the dollar, the US can wipe out a significant fraction of the purchasing power of its own debt. All other nations can do then is sit on the sidelines and fume.

Neoliberalism should not be seen metaphorically as a conscious, self-interested being. It is a self-organized, and supra-intentional system in which its own leaders are obliged to seek its perpetuation. To grasp it, we need several handles: historical development, ideology, institutions, enforcement methods, financialization and volatility, military action, “dollar hegemony,” food dependency, and a host of others. Several good books are available on the topic. Since ours is a brief background account, we will focus on the constant: motive.

Who is motivated to do what?

When I was in the army, there was one part of an operations order that superseded all others, because it conveyed – apart from the planning minutiae – the commander’s intent. That sub-subparagraph is called “desired end state.” It meant, regardless of how wrong the rest of our plans are, and no matter how many contingencies change everything about how we are to get this done, this is what we want to make into a fact on the ground. We will occupy this coordinate, these people will be dead, we will collect this specific information, or that bridge will no longer be passable. It is that goal, that desired end state, which serves as the magnetic-north to which all compasses then point.

This is the constant, and therefore the key category: motive. The rest of the categories revolve around that constant.

The motive behind neoliberalism is perpetuation of ruling class power and American international power, and the mechanics are fourfold: capture competitor nations in an American-dominated system, exploit the markets of weaker nations, ensure net flows of wealth from peripheral nations to sustain US consumption, and lock peripheral nations into debt and dependency as leverage to control how they do business.

If this is the what, then history can help us to infer the why as well.

Neoliberalism – A Short History

The notion that a great expansion of the size of ‘capital markets’ is a symptom of positive trends in capitalist production is as false as imagining that a vast expansion of the insurance industry is a sign that the world is becoming a safer place. -Peter Gowan

In the Beginning…

Even in its embryonic form as far back as Nixon, neoliberalism has been formed by crisis. Michael Hudson’s book, Super Imperialism: The Origins and Fundamentals of U.S. World Dominance, described by its author as a book on financial history, is a fine and detailed account of this process, which we will necessarily abbreviate here.

After World War II, US economic production rose exponentially; and by the early 70s had run headlong into a general crisis of overproduction, or “over-capacity,” exacerbated by US spending on the war in Vietnam. Overproduction is when competitive pressure outruns demand and creates an overshoot of goods, that then accumulate dust in warehouses.

In addition to this crisis, structural contradictions in the ever-more-international economy received a catalytic shock in 1973 with an OPEC oil embargo.

The Nixon administration responded to the encroaching crisis by dropping the gold-standard, to which all currency was pegged via the dollar, then dropping the fixed currency exchange rates developed during the New Deal to prevent market volatility. This freed him for a strategic devaluation of the dollar that effectively wiped out purchasing power owed as debt to creditors abroad. Nixon effectively exported the crisis-restructuring burden onto its own creditors.

The burden was shifted off of the US state and US financial institutions, not off the US people. The US population suffered unemployment and stagflation. From the 70s through the early 80s, business cycles became unpredictable, industrial production dropped, and unemployment grew, lighting a fire under the Reagan administration to seize its first opportunity to restructure its way out.

Reagan was able to do just that, because the stage had been set by President Richard Milhouse Nixon.

The Nixon Hat Trick

Hey Rocky, wanna see me pull a rabbit out of a hat? -Bullwinkle the Moose

President Nixon inherited an international system of finance that was constitutionally based on a monetary agreement from the Bretton Woods conference during World War II. That agreement was that the dollar would be backed by gold – that gold to be valued at US$32 a Troy ounce – and that all other currencies around the world would exchange with that dollar at a fixed exchange rate. If there were ten pesos to the dollar, then there were always ten pesos to the dollar. No fluctuations, except by a deliberative process of revaluation. So Nixon released other currencies to float in a hostile sea. And he quit backing dollars with gold. Creditors couldn’t get gold anymore. They had to take more fiat dollars, or nothing.

The fixed exchange and gold standard prevented speculation in currency markets, which the Keynesians believed – rightly, as it turned out – opens the door to dangerous, unpredictable and even international destabilizations.

Nixon took stock of his situation, looked at what he owed in external debt, and factored in that the now hegemonic dollar is uniquely immunized in a speculative currency market. So he unilaterally abrogated the whole system, daring not his enemies but his allies to retaliate… but all of them had invested in the dollar themselves, alas, and they were forced to accept Nixon’s terms.

This created what some now call the Treasury-bond system of international finance.

What is a Treasury Bond?

[After WWII] it fell to the American state to take responsibility for making international capitalism viable again after 1945, with the fixed exchange rate for its dollar established at Bretton Woods providing the sole global currency intermediary for gold. When it proved by the 1960s that those who held US dollar would have to suffer a devaluation of their funds through inflation, the fiction of a continuing gold standard was abandoned. The world’s financial system was now explicitly based on the dollar as American-made ‘fiat money’, backed by an iron clad guarantee against default of US Treasury bonds which were now treated as ‘good as gold’. Today’s global financial order has been founded on this; and this is why US Treasury bonds are the fundamental basis from which calculations of value of all forms of financial instruments begin.

-Leo Panitch

A Treasury Bond is a note from the US Treasury that says you loaned the United States some money, and that you can redeem the mature bond’s value plus a royalty, i.e., interest. You don’t have to redeem it at maturity. You can hold onto it, and the US will pay you back whenever you like. If you have $10,000 in bonds, then x-years from now you can cash it for your ten-grand-plus.

Let’s say then, you are very heavily invested in these instruments, when you come to realize that your debtor has taken so many loans, from so many people, that the loans are impossible to pay back. And any attempt to sell off the bonds could trigger a drastic devaluation. That is precisely the situation the world finds itself in now. Many nations hold T-Bills, and all know that if asked to redeem them the United States Treasury does not have the funds to pay back these loans and their interest.

As the saying goes, “If you owe the bank a thousand dollars, you have a problem; if you owe the bank a million dollars, the bank has the problem.”

The T-Bill system worked. No one dares demand repayment of US debt for fear they will instigate a dramatic devaluation of the dollar that would wipe out their own central bank reserves.

After Nixon’s gamble, all that was needed was the consolidation of a public-private partnership to oversee the newly emerging system. Wall Street went through the breach.

[T]he US government could, alone among governments, move the exchange price of the dollar against other currencies by huge amounts without suffering the economic consequences that would face other states which attempted to do the same. And … the Nixon administration decided to try to ensure that international financial relations should be taken out of the control of state Central Banks and should be increasingly centered upon private financial operators. It sought to achieve this goal through exploiting US control over international oil supplies. It is still widely believed that the sharp and steep increase in oil prices in 1973 was carried out by the Gulf states as part of an anti-Israel and anti-US policy connected to the Yom Kippur war. Yet as we now know, the oil price rises were the result of US influence on the oil states and they were arranged in part as an exercise in economic statecraft directed against America’s ‘allies’ in Western Europe and Japan. And another dimension of the Nixon administration’s policy on oil price rises was to give a new role, through them, to the US private banks in international financial relations. -Gowan, The Global Gamble, p 14

Gowan concludes, “Nixon gave Washington more leverage than ever at a time when American relative economic weight in the capitalist world had substantially declined and at a time when the productive systems of the advanced capitalist economies were entering a long period of stagnation.” Nixon learned how to “break out of a set of institutionalized arrangements which limited US dominance in international monetary politics in order to establish a new regime which would give it monocratic power over international monetary affairs” (Gowan 1999: 19).

He turned his greatest weakness into his greatest strength.

Nixon had calculated that dollar hegemony as a global system was “too big to fail” for the rest of the world, and the rest of the world backed down. We had now entered the stage of debtor-imperialism. The world’s biggest debtor is the world’s leader.

Richard Nixon pulled a rabbit out of the hat.

‘The Bankers’ Dilemma’ or, ‘How much is a trillion?’

If you owe the bank a thousand dollars, you have a problem; if you owe the bank a million dollars, the bank has the problem. In Treasury bonds alone, the US now owes foreign banks $3.7505 trillion. With a T.

$10,000 in $100 bills is one-half inch thick. One million dollars in hundreds fits in a grocery sack. One billion requires a double-stacked forklift pallet. One trillion requires 1,000 double stacked forklift pallets. Or as David Schwartz explains:

One million seconds comes out to be about 11½ days. A billion seconds is 32 years. And a trillion seconds is 32,000 years. I like to say that I have a pretty good idea what I’ll be doing a million seconds from now, no idea what I’ll be doing a billion seconds from now, and an excellent idea of what I’ll be doing a trillion seconds from now.



The little person on the left gives you scale. This is the $100′s stacked to a trillion.

Foreign banks have a big problem. What can they say? Pay us back, or else? Or else what?

This abandonment of gold and fixed exchange rates opened the way for the elimination of New Deal restrictions on financial speculators. Nixon followed up with a series of strategic devaluations of the dollar that wiped billions of dollars of US foreign debt off the books in Germany and Japan, both of whom had to sit by and fume helplessly.

Political scientist Eric Helleiner noted that “…the basis of American hegemony was being shifted from one of direct power over other states to a more market-based or ‘structural’ form of power.” The structure was tidily summed up by economist Henry C. K. Liu: “The United States makes dollars. The rest of the world has to make things to get dollars.” Liu called this “dollar hegemony.”

Without fixed exchange rates, the non-dominant currencies are vulnerable to speculative attacks. To defend themselves, other countries’ central banks must hold dollar assets in reserve (to buy their own currencies if they are being sold down by speculators). These “reserves” are largely US Treasury bonds, loans to the United States.

If the People’s Republic of China holds $877.5 billion in US debt (which it does), and if the US dollar is devalued by 50% in a run on the currency, China can lose more than $438 billion. So the idea – promoted by some alarmists – that China can wreck the US economy by starting a sell-off on dollars is technically possible, but suicidal for China. Not only would it lose the purchasing power in its reserve, it would wipe out its biggest export customer, to which (exporting) the whole Chinese economy has been bent.

Other currencies, however, are more vulnerable to speculative runs, and this is exactly what happened.

The Financial Full-Nelson

Nixon’s legacy empowered Ronald Reagan a decade later to build the monetary system on a foundation laid with the coup against the Allende government in Chile in 1973, after which General Pinochet enthusiastically implemented economic restructuring in accordance with Washington’s wishes. One could say that Latin America was the lab where neoliberalism was tested.

The debt-leverage system set the stage for taking advantage of crises generated by currency speculation. When foreign currencies crash in the metastasized speculative market (and they can be crashed intentionally as they were in Asia in the 90s), nations are thrown into a maelstrom of instability – including hunger, the most volatile phenomenon of all. The lifeline to these nations’ government’s are massive loans in US dollars.

Lenders do not lend out of altruism. There is a payback plan (and it’s called “structural adjustment”).

The Dollar-Wall Street nexus can manipulate these emergencies to penetrate markets throughout the world, using the IMF as a lever with its conditional emergency loans. This “technique” was pioneered by the Reagan administration in response to the Mexican currency crisis of 1982.

Wikipedia:

The Latin American debt crisis was a financial crisis that occurred in the early 1980s (and for some countries starting in the 1970s), often known as the “lost decade”, when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.

August 1982, the Mexican government announced that it was unable to pay its external debt to private US financial institutions. During the renegotiation of payments, the US-dominated International Monetary Fund (IMF) granted rescue loans on the condition that Mexico’s domestic economy (and the other Latin American nations swept into the current) be opened up (“liberalized”) to foreign (read: US) investment (read: takeover). All for a debt taken to cover another debt to the same institutions. In day-to-day life, this is called loan-sharking.

These loans were a contingent solution, principally to ensure Wall Street was made whole, but the Reagan administration and Wall Street had stumbled into a new method of debt-leverage that took advantage of crisis in the periphery to drain additional value from foreign domestic economies into US businesses and financial institutions.

A condition of the loan is the payback plan, wherein local governments were responsible to force their own populations (and environments) to bear the burden for repaying the loans – higher, more regressive taxes, the elimination of social programs, and the suppression of unions and environmental regulations. These measures were named “structural adjustment programs” (SAP) by the IMF.

SAPs became the new norm.

Virtually all developing countries—particularly in Latin America and Africa, and increasingly in the transition countries of east and central Europe—have implemented or are in the process of acceding to SAPs.

-Foreign Policy in Focus

These IMF SAPs are in effect a loan-sharking operation against almost 70 poor nations. IMF loans are denominated in US dollars, and have inexorably grown into larger and larger fractions of the national outlays of peripheral economies. This obligation – in the face of a crushing international economic sanction threat – to service burgeoning external debts using US dollars is precisely why these national economies are pressured to almost wholly export to the US – now the world consumer of last instance.

The Dollar-Wall Street Regime

Peter Gowan refers to the financial institutionalization of neoliberalism as the Dollar-Wall Street Regime.

[I]t is important to note how the two poles of this system — the Dollar and Wall Street — have re-enforced each other. First we can see how the new centrality of the dollar turned people towards Wall Street for finance. Because the dollar has been the dominant world currency, the great majority of states would want to hold the great bulk of their foreign currency reserves in dollars, placing them within the American financial system (or in London). Similarly, because many central commodities in the world economy were priced in and traded for dollars, those trading in such commodities would wish to raise their trade finance in New York and London. -Gowan, p 19

The dollar’s role was expanded across the world stage as something far more than currency, because it consumed the lion’s share of international financial markets. The sheer size of the US economy and consequent immunity of Wall Street meant that for any world actor investing a lot of dollars, Wall Street was the default.

In this way, the strength of Wall Street has re-enforced the dominance of the dollar as an international currency. -Gowan, p 19

The Bipartisan Consensus

Through all the gyrations of American policies for the world economy, the DWSR has remained firmly in place, constantly reproducing itself. In 1995 the dollar still remained overwhelmingly the dominant world currency: it comprised 61.5% of all central bank foreign exchange reserves; it was the currency in which 76.8% of all international bank loans were denominated, in which 39.5% of all international bond issues were denominated, and 44.3% of all Eurocurrency deposits; the dollar also served as the invoicing currency for 47.6% of world trade and was one of the two currencies in 83% of all foreign exchange transactions. And if intra-European transactions were eliminated from these figures, the dollar’s dominance over all other transactions in the categories listed above becomes overwhelming. -Gowan, p. 20

Financial regimes require political regimes, and vice versa. Contrary to the IMF and World Bank hype about the rising tide that would lift everyone’s craft, the results in the peripheral nations were greater dependency, less self-determination, increased rural landlessness and urban poverty, and greater political repression.

Even today, in countries that are trying to gain self-determination, the structural web of neoliberalism continues to trap them. Subsistence and local agriculture are the keys to independence, but with dollar hegemony as a world system, agriculture has been transformed from subsistence and local production using smallholders, into far-flung monoculture plantations held by the rich, and worked by displaced peasants for wages. The product is for export, to get dollars for the international market, not for local consumption.

In Haiti’s Artibonnite Valley, there is capacity for growing enough rice to feed the whole country. Instead, it is exported for dollars, and subsidized US rice is sold to displaced Haitians who, living in the city, have no access to their own subsistence.

The surplus peasantry – moved off the land by various enclosures – has moved into the sprawling, dangerously constructed slums of the cities, where some can be employed in sweat shops, and the rest are part of the “informal” economy – resulting in structured antagonisms with the authorities.

Independence, in effect, would mean de-coupling from the dollar, which no one can do when debts and oil markets are denominated in dollars.

The US political establishment is as locked into this paradigm as everyone else, however. No non-neoliberal candidate for the Chief Executive slot can even get through the Primary phase, excluded as they are by the astronomical costs of campaigns and the willingness of the major economic actors to continue that price escalation. John McCain and Barack Obama and George Bush and John Kerry and Al Gore, all took money from Wall Street; and Wall Street always butters both parties’ bread in election years.

The US electoral system is one now thoroughly based on what Jamin Raskin and John Bonifaz termed “the wealth primary.”

SUMMARIZING NEOLIBERALISM

No national income statistics today measure the most important asset on which classical economics focused: unearned income and unearned wealth. -Michael Hudson

Neoliberalism has been called “globalization.” That’s a little deceptive, because it suggests that the principle beneficiaries of the system are scattered across the world equally. The actual system is US-controlled, and directed more than any other single thing toward consolidating and expanding the power of the American state in the world.

When the US economy runs payments surpluses with foreign countries, it insists that they pay for their foreign debts and ongoing trade deficits by opening up their markets and “restore balance” by selling their key public infrastructure, industries, mineral rights and commanding heights to US investors. But the US Government has blocked foreign countries from doing the same with the United States. This asymmetry has been a major factor causing the inequality between high US private-sector returns and low foreign official returns on their dollar holdings. -Michael Hudson

As in all generalized and highly stratified social systems, the richer entities and the poorer entities have become dependent upon one another – the poor on the rich for jobs and money to live, and the rich on the poor to do the grunt work to ensure continued accumulation. The rich also depend on the political weakness of the poor, which gives the rich access to more materials. The poor are trapped by poverty and landlessness. The rich have to constantly extend their power – using the poor as a resource – to protect themselves from fellow capitalists (or nations) in a dog-eat-dog competition. Behind the whole system is an arms race dynamic, as capitalists centers compete to survive.

In the US, which sits at the top of this global pyramid, the necessity to maintain dominance is further complicated by the fact that the US standard of living is based on the constant flow of cheap consumer inputs into the US from abroad, be these oil from Southwest Asia, household products from China, precious metals from Congo, or clothes manufactured in a Latin American maquiladora. Politicians in the US depend on the US population – which is the beneficiary of many of these “unequal exchange” inputs. Politicians cannot remain in office when that consumption level is forced to fall. So US leaders are boxed into the system in such a way that they are obliged to support, defend, and expand neoliberalism.

Neoliberalism, we have seen, is enforced in a variety of ways. It is enforced by dependency on the US dollar. It is enforced by external debt, which must be paid in dollars. It is enforced by sanctions. It is enforced by military means. It is enforced by proxy, using local elites to be the enforcers in their own countries. And it is sometimes, when its back is against the wall, enforced by coups.

Coups, however, have to be disappeared into lies and rationalizations, because the fact of a coup for neoliberalism contradicts the ideological claims of neoliberalism.

On the cover of David Harvey’s book A Brief History of Neoliberalism, there are side by side photos of four people: Ronald Reagan, Margaret Thatcher, Deng Xiaoping, and Augosto Pinochet. These leaders are seen as the instrumental leaders for the development the whole neoliberal project, and together as emblematic of neoliberalism. The complexity of the relationships between them in this process is a subject excluded from this writing. I include it because it reminds us that while the ideology of neoliberalism has placed heavy emphasis on words like freedom, the actual practical development has included very heavy doses of naked authoritarianism.

The Bandaid over this gaping contradiction has been the claim that with economic “liberalization” (a word that conjures feelings of liberation and freedom), political “liberalization” will be its inevitable if eventual offspring. Absolutely nothing in the record, so far, has borne that out.

Harvey defines neoliberalism as “a class project … towards the restoration and consolidation of [ruling] class power.”

Neoliberalism has been an initiative – beginning reactively in the 70s, and becoming self-organized by the time of the Reagan administration in the 80s – designed to shift the weight of social power back to the rich.

It is also a system designed in the United States, for the United States, to perpetuate US global power.

It’s contradiction, according to Harvey, is the contradiction between capital’s need for mobility and the geographic constraints of the state. To smooth over that contradiction, transnational institutions are required to administer a regulatory regime that transcends (though not by any means equally) interstate boundaries. And a transnational military-intelligence-covert operations establishment is required as back-up. With more than a thousand military installations around the world, the US provides the latter.

*

There is push-back from the periphery. Neoliberalism is synonymous with neocolonialism in peripheral-nation streets. Impoverishment leads to destabilization. Destabilization leads to more direct forms of social control – the truncheon and the teargas and the gun.

The US state backs up this global neoliberal regime with military power which can be employed at various places along what the military establishment calls the “spectrum of conflict.” A coup d’etat finds its place somewhere on one end of that spectrum. A coup is a covert civil-military operation.

Sometimes, the colonial surrogates who are in charge need some help. And sometimes, the periphery just needs a reminder of who’s in charge.

Every ten years or so, the U.S. needs to pick some crappy little country and throw it against the wall, just to show the world we mean business. -Michael Ledeen, holder of the “Freedom Chair” at the American Enterprise Institute.

War is simply a heightened state of current neo-liberal policies of bringing a nation to its knees so as to pry open its resources for Western investment. -Robert Wrubel

Hot Money Blues

Every day the equivalent of an entire year’s GDP passes through the New York Clearing House and Chicago Mercantile Exchange in payment for trades in stocks and bonds, mortgages and packaged bank loans, forward purchase and repurchase contracts. Most of these trades take about as long as a roulette wheel takes to spin. They are driven neither by psychology nor by industrial technology, but are gambles based on computer-driven programs, or leveraged buyouts of existing assets. -Michael Hudson

We have a passing acquaintance now with the ideology and practice of neoliberalism. Now we need a basic aerial view of it.

*

Capital, that is, money that is invested with the hope of a return, can be generally divided into two categories: productive capital and finance capital. Productive capital is investment in making something, an actual product or service. Finance capital is money invested for a royalty. That can be loans to productive capital, but the goal is not whether anything is produced or not; it is whether there will be a return on the investment (ROI) in the form of royalties (for loans, the royalty is interest).

Finance capital can be further subdivided into two poles: investment and speculation.

Productive capital is invested in an actual enterprise that provides a tangible commodity. That can be canned tuna or vacation packages, but the investors know they have to wait for their return until the business turns a profit. The term of art for long-term investment is “slow money.”

Speculation is “playing the markets,” a form of high-end gambling.

The ROI for speculators does not wait for a factory to get built, break even, and begin making money. Speculative capital’s royalties are in strategically buying in and out of fluctuating markets, fast. This is called “hot money.”

With derivatives trading, royalties can be won or lost by making bets on the fluctuations in the markets. “Hot money,” because it can’t be allowed to cool off. Speculators are investing and dis-investing second by second to gain an edge on financial markets, where values can be inflated by the psychology of herd behavior (including stampedes), and by strategic opportunism. It creates vast oceans of fictional value, that is, a lot more flying money than there is material economy to roost on. So far, this always turns out badly.

This applies to the Dutch tulip bubble of 1867. It applies to the global housing bubble of the early 21st Century.

The point is, the development of neoliberalism has privileged finance capital, and it has privileged the speculative pole of finance capitalism. And so the whole project has run into serial crises, more volatile since the introduction of the microchip. In 1997, people with computers in New York plunged East Asia into a deadly economic spiral. Some people have taken to calling this “casino capitalism.”

Walden Bello noted that in 2005 there was $46 trillion in hot-money circulation that year.

Most economic formulas would conclude that trillions of dollars without material assets to back them up might lead to a sell-off of the currency. Think of all the money together as a value of X. Think then of all the commodities available together as Y. If X equals Y, prices are stable. But if X equals 2Y, the prices drop to about half. Too many commodities circulating across against too little money. If 2X equals Y, prices will go up. Too much money circulating against too few commodities, and the purchasing value of each dollar has dropped by half. If you hold dollars, and they exceed the global commodities basket, the dollars should be sold down on currency markets. If not, then the dollars are circulated offline from the material economy… in speculation. This is how bubbles get inflated.

The subject of several books is how the recent and exotic permutations of the betting instruments became the anchor that dragged the entire global economy after it in the 21st Century plunge. But that is only an aside here.

The increase in debt alone should have triggered a dollar-run and terminal stock market crash. The reason it did not is that capitalists around the globe are now completely dependent upon Wall Street’s survival; and they know it. The system had to be internationalized in order to continue to privatize gains (growth) and socialize losses (externalities). Now everyone lives in the dollar economy, and they have to send those dollars (lots of dollars) somewhere to save and invest. That somewhere is the US.

The US is still far and away the largest economy in the world, and size matters.

Not only is the US economy still the largest by far, it also hosts the most important new high-tech arenas of capital accumulation, and leads the world by far in research and development, while American MNCs directly and indirectly account for so large a proportion of world-wide employment, production and trade. -Leo Panitch

The rest of the world is the bank, and the US owes the bank… a lot. The bank definitely has the problem.

China owns $877.5 billion in US debt, mostly as treasury bills. Japan owns $768.5 billion. UK owns $233.5 billion. Oil exporting nations owns $218.8 billion. Brazil owns $170.8 billion (a good reason Lula de Silva – the former leftist – is adhering to the IMF blueprint). Hong Kong owns $152.4 billion. Taiwan owns $124.1 billion. Russia owns $120.2 billion. Who exactly is going to start the run on the dollar without committing financial suicide?

The world is not yet ready to abandon neoliberalism, nor ready to embrace whatever post-neoliberalism shakes out to be.

Unfortunately, the Obama administration is doing nothing new.

‘The One-Trick Pony’ or “Change You Can Believe In’

This treatment of the coup is about what neoliberalism has done to Latin America. That doesn’t mean neoliberalism is only hurting people outside the US. The current crisis in the US, which appears to be rolling out into a catastrophic cascade, is very much “brought to you by Neoliberalism.” There are serious questions now, and not from professional alarmists, about whether a new basis is available to remount as fresh accumulation regime. Neoliberalism is backed into a corner now; the gloves will come off. That is why we are at war, overt and covert, all over the world.

The neoliberal orthodoxy has not been abandoned, even after the 2007 financial blowout in the US. Barack Obama was sworn in as the crisis hit the US like an earthquake; and he summarily re-hired the exact same people who had set the economy up for it, Wall Street neoliberals: Timothy Geithner as Commerce Secretary and Lawrence Summers as Director of the White House Economic Council.

There is a sense of desperation about US policy now, foreign and domestic. Neoliberalism has evolved from transmissible crisis to core-crisis. But the US political-financial establishment has become its own one-trick pony. It just periodically bails out Wall Street when the system sheds value. Everyone else eats the price tag. Obama is bailing out Wall Street (as it has been bailed out six times since Reagan).

Bailouts make Wall Street whole; and coups are an external backstop when people begin to abandon the Washington Consensus. In 2009, Hillary Clinton managed the third US-supported coup in the last eight years. Between April 2002 and June 2009, there were three US-supported coups d’etat. That’s a coup every 28.6 months. This suggests that coups d’etat are still an essential feature of US foreign policy.









The Honduran coup is not the last act in Latin America, however. The outcome of the crisis of neoliberalism is not yet known, and the US has become a weaker (and some would argue, more dangerous) actor.

Resistance to neoliberalism has pushed Latin America further into the hands of more and more “anti-neoliberals.” Iraq and Afghanistan blunted the ability of the US to intervene successfully in the region. The economic crisis that is driving the nail into neoliberalism’s coffin has come home to roost with a terrible and still growing force; and it will be an even greater diversion of energy than the wars, which are still going on and going badly.

The Obama administration will – so long as it has a choice – remain neoliberal, even as we head into an unknown epoch of post-neoliberalism. Michael Lind of Salon wrote:

By the time Barack Obama was inaugurated, the neoliberal capture of the presidential branch of the Democratic Party was complete. Instead of presiding over an administration with diverse economic views, Obama froze out progressives, except for Jared Bernstein in the vice-president’s office, and surrounded himself with neoliberal protégés of Robert Rubin like Larry Summers and Tim Geithner. The fact that Robert Rubin’s son James helped select Obama’s economic team may not be irrelevant.

There is a good reason that the foreign policy establishment of the Obama administration has changed little from the Bush foreign policy establishment (with strong representation from the Reagan era).

Hillary Clinton is a member of the same economic theocracy.

Another One-Trick Pony (The Coup Cadre)

In 2010 post-coup, Honduras, and its border states, Guatemala, El Salvador, and Nicaragua, the US Ambassadors were respectively Hugo Llorens, Stephen McFarland, (Chargé d’Affaires ad interim) Robert Blau, and Robert Callahan.

Llorens was Bush II’s national security adviser on Latin America, and a shaker and mover behind the FTAA.

McFarland was another Bush appointee, sworn in by then Deputy Secretary of State and Reagan hatchet-man, John Negroponte (who now serves as a Clinton adviser).

Robert Blau (an interim Obama appointee) was an old friend of Llorens, who he worked with together under Otto Reich when he was Assistant Secretary of State for the Western Hemisphere.

Robert Callahan, another Negroponte colleague from Negroponte’s Honduras days, was actually involved in the management of Reagan’s cross-border “Contra” war against Nicaragua in the 80s. The latter appointment was seen by Nicaraguans as highly provocative.



John Negroponte

Not only are these committed neoliberals, their collective genealogy traces well past Bush II and into the Reagan administration’s Central American covert operations era.

Neoliberalism was new with Reagan. It has matured – or some might say, decayed – since then. Clinton’s State Department has a bigger problem at home than Reagan ever did with the worst economic crisis in the United States since the Great Depression. And that’s part of the coup context, too. Honduras was the first post-crash coup for the US., but it was engineered by the Reagan coup-cadre – about which we will talk at length further along – demonstrating something more revealing than the shared amorality of the two US political parties with regard to Latin American: the neoliberal establishment is a one-trick pony in a changing world. It is based fundamentally not on force, which is always the last resort, but on the leverage of debt.

Life and Debt

Debt as been denounced ever since the Hebrew Scriptures as an instrument for taking land, liberty, and lives. It is being used today for exactly those same purposes. Debt is not only a burden laid on the suffering, peripheral nations; debt has become the principle form of social control inside the United States. To reflate investor bubbles, easy credit was offered to the American public, the unspoken assumption being that this fictional value created by the speculative markets’ rampage could not disappear. Here is an astonishingly straightforward quote from the Federal Reserve Bank of San Francisco:

U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007. That dramatic rise in debt was accompanied by a steady decline in the personal saving rate. The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period.

Debt=growth. Your debt = my growth. If ever there was a single unifying experience that encompasses the people of the United States and the people of Latin America, the people of East and West Asia, the people of Africa and of the Island States, it is this: Wall Street is the creditor we work our asses off to pay.

The great majority of financial income is lent out to load yet more property and income streams down with debt. The economy’s bottom 90 percent is driven increasingly into debt to the wealthiest 10 percent. This recycling of debt service and financial gains (and government bailout grants) into new loans reaches its limit at the point where debt service ends up absorbing the entire economic surplus, leaving no cash flow for new capital investment. -Michael Hudson

Untaxed revenues are not used to upgrade technology or replace business losses. It is used to service debt.

No seed money is left, no revenue for governments to spend on infrastructure because all is earmarked to pay bondholders. Families are unable to afford an education or save for their retirement. The economy collapses. -Michael Hudson

What the Dollar-Wall Street Regime – headed by the Federal Reserve Chair and the Executive Branch – has done so far is repeatedly bail out Wall Street and reflate financial bubbles. When billions, even trillions, are lost, the public has been forced to pick up the tab.

This is the basic neoliberal formula, without the ideological window-dressing: (1) privatize the gains, and (2) socialize the losses.

Neoliberalism is about power. That power can be described in plain terms: a few people are making a lot of money by doing nothing. That money is then a claim on the rest of us and the earth. Fortunately or unfortunately, this is not a permanent condition. It is a self-cannibalizing system. It is a burned bridge of suffering. We suffer while it’s there, and we will suffer when it burns.

The Obama administration inherited this situation, but his list of economic advisers is not consistent with a “change” agenda. Paul Volcker now advises Barack Obama on the economy. Paul Volcker was once the adviser to Ronald Reagan. Volker began Latin America’s harsh introduction to “structural adjustment.”



Paul Volker

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Volker and Friend

The Volcker Shock

Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. -Kenneth Boulding

Paul Volcker is an economist who was the Chairman of the Federal Reserve under Presidents Carter and Reagan. Interestingly enough, he is now an economic adviser to President Barack Obama. His name will forever be associated with something called stagflation, a bastardized combination of the terms stagnation and inflation.

When economies are in recession (stagnation) and prices continue to rise (inflation), orthodox economists are flummoxed, because the standard practice in an economy under the control of a central bank has been to increase interest rates when employment approaches 100%, the fear being that full employment will drive wages up, creating inflation. Raising interest rates slows down investment and causes the economy to shed jobs, reducing the market power of labor and thereby lowering wages. Imposed stagnation is seen as the weapon against inflation –anathema to finance capital, because rising prices reduce the purchasing power of lenders’ return on investment (ROI). Simultaneous inflation and recession cuts into the ROI of both finance capital and productive capital. It also leaves the Fed at an impasse.

The pony’s one trick doesn’t work.

With the stagflation of the late 70s and early 80s, Volker confronted this dilemma by coming down on the side of finance capital, and he chose to go after inflation. He raised the interest rate on all US loans to 21%, which effectively shifted much of the pain offshore. This policy devastated developing nations, and came to be known as “the Volcker Shock.”

To be sure, the end of fixed exchange rates and a dollar nominally tied to gold now meant that it had to be accepted internationally that the returns to those who held US assets would reflect the fluctuating value of US dollars in currency markets. But the commitment by the Federal Reserve and Treasury to an anti-inflation priority via the founding act of neoliberalism – the ‘Volcker shock ‘of 1979 – assuaged that problem. -Leo Panitch

[The] ‘Volcker Shock,’ which raised interest on all US loans to a debilitating 21%. Developmentalist countries that had had their feet swept out from under them in the 70′s (their main industries privatised, protections removed through free trade and foreign pressure) were now in even less of a position to defect from international pressure. In this pattern, repayment schedules and debt restructuring are allowed only in conjunction with further free market policy enactment, the dreaded conditionality of IMF loans Shock Doctrine Summary.

The Volker Shock doctrine shocked Latin America to its knees.

Latin America’s trauma of the 70s,80s, and 90s hit home as debt, debt that was rolled down on top of the general population with the IMF’s “austerity measures.”

Latin America Gets Adjusted… and Adjusted

Since 1973, when the oil states raised prices, they were flush with excess (and now unpegged) dollars, which were repatriated to Wall Street for investment. That glut of dollars – itching to be invested by Wall Street – was used in Latin America to make massive development loans, with “flexible” interest rates (subprime loans anyone?), when the economy seemed to be on the upswing in the early 70s. Easy credit became the name of the game. Mexico, Brazil, and Argentina were the biggest borrowers. Sovereign debt in Latin America quadrupled.

By 1980, the economy slid into recession, with inflation, and Volcker raised interest rates to curb inflation, ballooning debt repayments in Latin America, grinding their economies to a halt, and throwing these large borrowers into crisis. In 1982, Mexico announced that it could not pay its debt, and Brazil, Venezuela, and Argentina followed in short order. As a result, their currencies were devalued on the speculative market, wiping out the purchasing power of the Latin American street.

This was an emergency for Wall Street too, since the Fed’s decision to raise rates had just bankrupted its own cash cow in the region. Reagan’s Secretary of Treasury, James Baker, was obliged to make Wall Street whole if the crisis were to be contained in Latin American and not allowed to spread to the US. The solution was debt restructuring, in conjunction with bail-out loans to which “conditionalities” were attached. These conditional loans were coordinated by the IMF and the World Bank, and each installment of each loan was released only after the recipient nation had performed one of the “structural adjustments.”

Among those conditional adjustments to release the rescue loans were wage cuts to the public sector, elimination of social programs and domestic subsidies, an increase in regressive taxation, deregulation (of labor and environmental standards), privatization (especially of public utilities), drastic reduction of import tariffs, and access to the domestic market by foreign investors. The model was Chile, where nascent neoliberal practices had been adopted by the military dictatorship of Augosto Pinochet.

The United States had found a way, via the institutional framework of the IMF/World Bank, to shift the crisis onto Latin America and to re-colonize Latin America in one fell swoop.

In Latin America, the 1980s were termed “the lost decade” of development largely because, instead of continuing to grow, per capita GNP and income receded to the levels of the mid 1970s [and in Africa to that of the pre-independence level of the early 1960s]. Per capita income declines of 10 to 15 percent were common and reached or exceeded 25 percent in Argentina and Peru. Immiserization became rampant in part because of the debt service and massive export of capital to help support the banks, the financial system, and the economy generally in the North … during the present world … economic crisis, which began in the mid 1960s (Frank 1980, 1988). In Latin America, but also in some other parts of the Third World, the 1990s threaten to become the “decade of cholera.” -Andre Gunder Frank

The late Andre Gunder Frank wrote the above in 1992, in an article decrying the debt trap into which Latin America had fallen.

All of these countries practiced export led [non]growth. Moreover, [often under IMF/World Bank pressure] they socialized the burden of the debt, which had been largely contracted and/or taken advantage of privately. Quite independently of ideology or anything else, the “Communist” regimes in the East and the “military fascist” ones in the South, as well as their respective successor “democratic” regimes in both have all handled their debt crises in exactly the same way. At the same time, the debt was and remains an instrument successfully used by the West to force the South and the East to drop out of the race to compete in the world economy.

The direction of Dollar-Wall Street policy by the 90s was annexation and integration of all capital markets. Western Europe began to integrate Eastern Europe as its new exploitable periphery, and the United States turned to regional annexation and integration policies in this hemisphere, the North American Free Trade Agreement (NAFTA) becoming emblematic of this trend for both advocate and opposition.

Where useful, Canadian and Latin American raw materials, labor and capital are to fuel the decelerating US locomotive. Moreover, this American jigsaw puzzle is already being assembled piecemeal. First the US-Canada free trade agreement. Then the US-Mexico one and the trilateral ones involving the same countries. Serving as a link in the meantime, Mexico makes a trade agreement with the Central American states, a looser one with Venezuela and Colombia, and still another one with more distant Chile. In the Southern cone, Mercosur establishes ties among Brazil, Argentina, Uruguay and Paraguay. However, these economies, and those of Peru, Ecuador and Bolivia are not likely to find much place in an economic bloc dominated by the United States. Either they pose too much of a competitive threat, like Sao Paulo; or they have little to contribute beyond drugs. -Frank

By the 1990s neoliberalism had penetrated all of Latin America, beginning with Pinochet, but eventually swallowing nationalist and social democratic regimes as well: Fujimori’s Peru, Menem’s Argentina, Paz’s Bolivia, the Chilean Socialist Party, Mexico’s PRI, Brazil’s Social Democratic Party, and Venezuela’s Democratic Action Party.

Crises in big nations prevented its consolidation. Mexico in 1994. Brazil in 1999. Argentina in 2002.

The ravages of hyper-inflation were checked, but this was only achieved at tremendous cost. For a decade or more, economic development was paralysed, the concentration of wealth grew greater than ever before, public deficits spiralled and the mass of the population had their rights expropriated, most notably in the domain of employment and labour relations. On top of this, national debt expanded exponentially and regional economies became highly vulnerable, helplessly exposed to attack from speculators, as these three countries each discovered to their cost. It was neoliberalism’s poor economic performance in Latin America that in many instances led to the defeats of the governments that pioneered it. These include Alberto Fujimori in Peru, Fernando Henrique Cardoso in Brazil, Menem in Argentina, Carlos Andrés Pérez in Venezuela and Gonzalo Sánchez de Lozada in Bolivia; also gone are the PRI in Mexico, the alternation of the two traditional parties in Uruguay, and the politicians who tried to perpetuate neoliberalism even beyond its collapse, including Fernando De la Rúa in Argentina, Lucio Gutiérrez in Ecuador and Sánchez de Lozada in Bolivia. It is also important to note the isolation of those leaders who struggle to keep it going, such as Felipe Calderón in Mexico, Michelle Bachelet in Chile, Alan García in Peru, or Alfonso Uribe in Colombia. Emir Sader

In 1994, the IMF organized a bail out of Mexico after NAFTA triggered a peso-devaluation. In fact, it was Wall Street, the creditor, who was bailed out at the expense of US taxpayers. In 1997, the Clinton-engineered Asian crisis threw Latin America into another slump. By 1998, Argentina threatened to default on its now un-payable IMF loans, and the nation collapsed into almost four years of unemployment and deflation, plunging half the population into poverty. Ripples were felt in Brazil, Ecuador, Paraguay, Chile, and Mexico.

For every action there is a reaction. The Latin Americans reacted.

The Colonel

In response to these crashes and their social costs, an entirely new “anti-globalization” movement was emerging – ironically – around the world; and It was particularly sharp in Latin America. Chilean Marta Harnecker wrote:

Latin America was the first region in the world where neoliberal policies were introduced. Chile, my country, was used as a testing ground before Prime Minister Margaret Thatcher’s government implemented them in the United Kingdom. But Latin America was also the first region in the world where these policies came to be rejected as policies that only served to increase poverty, aggravate social inequalities, destroy the environment, and weaken working-class and popular movements in general. It was in our subcontinent that left and progressive forces first began to rally after the collapse of socialism in Eastern Europe and the Soviet Union. After more than two decades of suffering, new hope was born. At first, this took the shape of struggles to resist neoliberal policies, but after a few years, people went on the offensive, conquering arenas of power.

Popular resentment about deteriorating social conditions was characterized by a strong consciousness of Neoliberalism, as a formed concept; this grasp of the international relations of neoliberalism opened the door to an emergent popular politics that successfully contested for state power, as Harnecker points out. For good or ill, since history has not yet provided us an answer to some key questions: Is state power effective, given its scale and complexity and embeddedness with day-to-day economics? And does the modernist development model, that left-leaning political leadership in Latin America have embraced, inhere with its own weaknesses, weaknesses that could force leaders back into the arms of the Dollar-Wall Street Regime, or weaknesses in industrial development altogether, i.e., dependency on foreign goods from gasoline to steel to staple foods. Time will tell if new leadership in Latin America can begin with the gains of greater political independence and move toward material independence.

One of the keys to this Latin American initiative to reorganize was the election of an ex-Paratroop Lieutenant Colonel to the Presidency of Venezuela, Hugo Rafael Chavez Frias. Mixed-race in Venezuela’s racially-stratified society, and literally born in a mud hut, Chavez was elected in 1998 with 56% of the Venezuelan vote.

Chavez was remembered from his own leadership of a coup attempt against the Venezuelan government in 1992, as a member of the active duty Army and the left-nationalist formation, the Fifth Republic Movement (MVR). That coup, which failed, was organized in response to massive cuts by the Perez government to social services, after Perez had been elected on an anti-IMF/Structural-Adjustment platform. When Perez ordered the structural adjustment cuts, there were mass demonstrations, to which the Perez government responded with violence. While the coup failed, the popular movement that supported its aims metastasized. And the singing, profane, gregarious “black” colonel became the face of that movement.

Chavez himself is a professed Christian who once considered the priesthood; and he says his views on social issues reflect his understanding of the Gospels as liberation texts. He entered the Venezuelan Academy of Military Sciences at seventeen, and during his military career with the paratroopers went to graduate school for political science at Simon Bolivar University. He also wrote poetry, stories, and plays. In 1983, he organized a political organization whose first members were fellow military officers, the Revolutionary Bolivarian Movement (MBR-200). This would evolve into the Movement for the Fifth Republic (MVR) that would organize the failed coup attempt of 1992.

The 1992 coup attempt tacitly assumed that there was no route to independence through elections or legislation. The growth of this movement after 1992, however, would prove them wrong. When Chavez ran for the presidency in 1998, in spite of everything the establishment had to throw at him, he trounced his opposition.

His election was taken by the Venezuelan elite as well as Washington to be a direct and dangerous rebuke.

Chavismo

Some Latin American leaders have decided to try building a regional alternative with the Bolivian Alliance for the Americas (ALBA), an initiative of Venezuela and Cuba to construct an alternative trade alliance to the neoliberal Free Trade Area of the Americas (FTAA) agreement.

This is one factor that led directly to the coup against Manuel Zelaya; and it was explicitly stated as a reason by the Honduran coup-makers. ALBA is routinely mischaracterized by the US press as “anti-American.” It is actually anti-neoliberal.

Here is an interesting quite from the International Monetary Fund’s own website:

If you have difficulty distinguishing the World Bank from the International Monetary Fund, you are not alone. Most people have only the vaguest idea of what these institutions do, and very few people indeed could, if pressed on the point, say why and how they differ… Superficially the Bank and IMF exhibit many common characteristics. Both are in a sense owned and directed by the governments of member nations. The People’s Republic of China, by far the most populous state on earth, is a member, as is the world’s largest industrial power (the United States). In fact, virtually every country on earth is a member of both institutions. Both institutions concern themselves with economic issues… Staff members of both the Bank and IMF often appear at international conferences, speaking the same recondite language of the economics and development professions, or are reported in the media to be negotiating involved and somewhat mystifying programs of economic adjustment with ministers of finance or other government officials. The two institutions hold joint annual meetings, which the news media cover extensively. Both have headquarters in Washington, D.C., where popular confusion over what they do and how they differ is about as pronounced as everywhere else. For many years both occupied the same building and even now, though located on opposite sides of a street very near the White House, they share a common library and other facilities, regularly exchange economic data, sometimes present joint seminars, daily hold informal meetings, and occasionally send out joint missions to member countries. Despite these and other similarities, however, the Bank and the IMF remain distinct. The fundamental difference is this: the Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations.

The World Bank directs “development.” The IMF is a debt enforcement agency. The World Bank tells nations what they can do (like convert national agriculture into export platforms to get dollars). The IMF is the world’s loan shark.

Hugo Chavez was elected to the presidency of Venezuela in 1999 (referred to by the US press as “came to power,” a term designed to reinforce the impression of a Latin American strong man). He ran on an anti-neoliberal platform, and was elected with 56% of the vote. He immediately called a national referendum to change the Constitution that he saw as supporting the Venezuelan oligarchy. This is exactly what Zelaya was falsely accused of before the Honduras coup in 2009 (his was a non-binding referendum on whether to convene a Constitutional Assembly). At any rate, the referendum passed the new Constitution, and Chavez was re-elected in 2004 with 62% of the vote against two opposition candidates.

For the first time since the overthrow of Chile’s Salvador Allende in 1973, a challenge had arisen to US hegemony in this hemisphere. A popular leader who promised redistributionist policies at home, openly criticized the neoliberal model, and presided over an enormous deposit of oil wealth. And a lot of things began to happen.

A new constitution was adopted.

The new constitution included increased protections for indigenous peoples and women, and gave rights to education, housing, healthcare, food. It added new environmental protections, and increased requirements for government transparency. It increased in the presidential term from five to six years, allowed people to recall presidents by referendum, and added a new presidential two-term limit. It converted the bicameral National Assembly into a unicameral legislature. It also renamed the country to República Bolivariana de Venezuela. Elections for all elected government positions followed in 2000 under the new constitution, including the 2000 presidential election. -Greg Grandin

Eighty percent of Venezuelan voters passed the new constitution, and learning the Constitution was integrated into adult literacy programs. With revenues from a nationalized oil company, Chavez began a comprehensive experiment in local governance with neighborhood-based popular assemblies called Bolivarian Circles. National funds were awarded to the assemblies, who then made local decisions about spending priorities. The combination of charismatic leader, oil money as a backstop, decentralized socialist politics, and the general conjuncture in Latin America created a phenomenon in Venezuelan politics called chavismo.

(2007) Chavismo is not an adequate description of the social movement that makes up Chávez’s political base, since many organizations predate his rise to political power, and their leaders and cadre have a sophisticated understanding of their relationship with Chávez. Over the last couple of years, a number of social scientists have done field work in urban barrios, and their findings confirm that this synergy between the central government and participatory local organizations has expanded, not restricted, debate and that democracy is thriving in Venezuela. Chavismo has ripped open the straitjacket of post-cold war Latin American discourse, particularly the taboo against government regulation of the economy and economic redistribution. Public policy, including economic policy, is now open to discussion and, importantly, popular influence. This is in sharp contrast to Costa Rica, where a few months ago its Supreme Court, with the support of its executive branch, prohibited public universities from not just opposing but even debating the Central American Free Trade Agreement, which soon won a national referendum by a razor-thin margin.

-Mark Weisbrot

Chavez then committed an unforgiveable sin. He embraced socialist Cuba as a regional friend. In 2000, President Hugo Chavez and President Fidel Castro signed an accord. Venezuela would provide Cuba with 53,000 barrels of preferentially priced oil a day. Cuba would send 20,000 medical and educational cadre to work with the rural poor in Venezuela.

IMF Begins to Lose its Grip – ALBA

The Bolivarian Alliance for the Peoples of Our America (Spanish: Alianza Bolivariana para los Pueblos de Nuestra América, or ALBA) is an international cooperation organization based on the idea of social, political, and economic integration between the countries of Latin America and the Caribbean. It is associated with socialist and social democratic governments and is an attempt at regional economic integration based on a vision of social welfare, bartering and mutual economic aid, rather than trade liberalization as with free trade agreements. ALBA nations are in the process of introducing a new regional currency, the SUCRE. It is intended to be the common virtual currency by 2010 and eventually a hard currency. On Tuesday, July 6, 2010, Venezuela and Ecuador conducted the first bilateral trade deal between two ALBA countries using the new trading currency, the Sucre, instead of the US dollar. -Wikipedia, ALBA

In the wake of the 2002 coup reversal, the Chavez government of Venezuela began to formalize its agreements with Cuba into the framework for the Bolivarian Alliance for the Americas (ALBA). In 2004, Venezuela crafted a trade agreement between itself and Cuba based on a standing agreement. In exchange for favorably-priced Venezuelan oil, Cuba assists Venezuela with medical clinics established in Venezuela’s poorest areas. This marked the germination of the ALBA alliance, with only two member states. In 2006, gas-rich Bolivia joined. In 2008, Nicaragua joined, even though it was also a signatory to the US neoliberal initiative, the Central American Free Trade Agreement (CAFTA). In 2008, Dominica joined ALBA; he same year Honduras signed an agreement to join. After the June 2009 coup, that agreement was nullified, which would have provided cut-rate petroleum, additional medical care, and upgrading of transportation infrastructure to Hondurans. In June 2009, the same month as the coup in Honduras, Antigua and Barbuda, as well as Saint Vincent and the Grenadines joined the alliance.

ALBA was very new and very small, but it was gaining traction, and because Hugo Chavez was using Venezuelan oil wealth to create some different facts on the ground.

ALBA currently covers a joint population of 69,513,221. If the election of Andrés Manuel López Obrador had not been stolen in 2006 (citation http://www.alternet.org/story/39763/ ), and if Obrado had chosen to join ALBA, the number would have grown to 175,864, 161. If Brazil were to join, that number would explode to 261,484,727. Chile. Argentina. This is the stuff of neoliberal nightmares.

Venezuela had also set about using its ample oil revenues – boosted by rising oil prices – to assist fellow Latin American states in escaping the IMF debt-trap. This was considered apostasy by the whole neoliberal establishment, and dangerous because Venezuela had amassed foreign exchange reserves of around $30 billion.

Venezuela bought $5 billion in Argentine bonds to assist that government paying down the principle on its IMF debt. http://en.wikipedia.org/wiki/Argentine_debt_restructuring In Ecuador, Venezuela offered to buy $300 million in bonds, but when the Ecuadoran bonds strengthened, Ecuador only asked to sell $25 million. Bolivia was given a loan of $100 million to support its new land reform policies.

The damage to the IMF was not regional, but international. From a high in 2004 of $81 billion in outstanding loans, the IMF portfolio shrank to $11.8 billion, with Turkey alone accounting for 75% of that portfolio.

Paul McIvor describes the wounds of the IMF at the hands of Venezuela:

[T]he IMF’s influence in the region is on the decline. In 2005, the Fund placed 80 per cent of its loans in Latin America but this year that amount is down to a mere one per cent, or $50 million. While there has been no economic miracle, enabling countries like Bolivia and Ecuador, which owe $5.9 billion and $10 billion respectively, to pay off their foreign debts, a new lender has entered the picture – Hugo Chavez and the Venezuelan petro-economy. So far, Chavez has loaned $2.5 billion to Argentina and is close to providing $500 million to ease the Ecuadorian debt crunch and $1.5 billion to help Evo Morales stabilize the situation in Bolivia. Venezuela is also floating a bond offering jointly with Argentina, following last November’s successful $1 billion issue. Chavez has proposed institutionalizing this lending with a regional organization he calls the Banco del Sur. This is bad news for the IMF, which has been forced to consider selling off part of its gold reserves to cover losses from its lending operations. More fundamentally, it is bad news for the United States, whose Treasury is the largest shareholder in the IMF. Historically, the IMF and the World Bank have been effective in promoting the ‘Washington Consensus’ – a sort of economic shock treatment intended to put countries like Argentina on the path to economic growth. Typically, countries would have to submit to structural adjustments, privatization and austerity measures to obtain a loan from the IMF.

ALBA’s architects appear to understand that food security/food independence is an absolute precondition of any meaningful notion of independence, Venezuela, Cuba, Nicaragua, and Bolivia signed a series of agreements on mutual agricultural development, joint food distribution, and a $100 million food security fund.

Food security and food independence are still not part of mainstream discourse on international relations, even on the left. But it is at the center of the debt-leverage regime in a world transformed by the so-called Green Revolution, where agriculture has been converted into a dollar-making machine using hydrocarbon-heavy monocropping of export commodities.

Not only has this cut into local agriculture, it has devastated much of the arable land for future local agriculture, and thereby created an even more urgent dependency on the status quo. Dependency for food. This is where the rubber meets the road in politics, as anyone who has ever witnessed a food riot can tell you. Hungry people become disorderly, fast.

Without steady, massive flows of food along the existing circuits of capital, populations would starve. This counts as an editorial aside, I suppose, but it seems unlikely that any program which attempts to break with dependency on a US-dominated world system can succeed, unless and until a locally-based, resilience-oriented food system has been developed. Recall Haiti, where the Artibonnite Valley can grow enough rice to feed Haiti, the rice is exported; and Haitians buy the inflated, subsidized rice of East Texas to survive.

The real danger in Latin America posed by the approaching hot-money abyss in the US is not a shift in statistics, but a crash resulting in the total destabilization of nations. Subsistence is still possible for the peasantry of these nations, but for the growing urban population, a cutoff in capital flows would certainly result in mass hunger and the violence that goes with it.

ALBA was not conceived as a counter to the United States. It was conceived of as a lifeboat. Time will tell, because the wolves of deflation are howling each day closer to the IMF campfire.

With the United States importing around 1/9 of its oil from Venezuela, and with the US being Venezuela’s biggest oil customer, Venezuela has proven resistant to pressure; but it is also uniquely vulnerable to changes in oil prices. During the Cold War, the US convinced Saudi Arabia to drop oil prices as a strategic weapon against the Soviet Union’s single biggest source of development capital – oil. On the other hand, oil proved two years ago that it is a fine investment opportunity when the prices are run upon oil to reflate a financial bubble. Higher oil prices, if necessary to extend the life of Wall Street, will also be another boom for Venezuela.

The Class Traitor

In August, 2008, President Manuel Zelaya of Honduras signed an agreement in which Honduras would join ALBA. Ten months later, he would be kidnapped and sent to Costa Rica.

He seems an unlikely “leftist,” as he would come to be known. He was the offspring of oligarchs, his family being big players in the ranching and timber businesses. He joined a centrist party, had a quiet, nondescript career in the legislature, and was elected as a conservative. He was once actually the director of the Honduran Chamber of Commerce (COHEP) which was deeply involved in the coup against him. As President, he began by supporting CAFTA even in the face of widespread and vocal opposition at home.

Zelaya inherited a broken Honduran economy and a restless society.

During the first 32 months of his government, Zelaya faced at least 722 social conflicts of varying magnitude, including the national civic strikes of 2008 which paralyzed the country over demands such as price controls on basic foodstuffs, keeping potable water projects away from municipal control, and the approval of an increase in the minimum wage.

It was the organization and vigor of the social movements that forced Zelaya to take notice, but it was the new regional context that provided Zelaya with alternatives. At his domestic back, the organized resistance was explicitly against neoliberalism. At his front was ALBA.

In a country in which the two main parties can only be distinguished by the color of their logos, the popular organizations have bet on the construction of a truly different country: one which abandons the path of neoliberalism. On the way, they made their president into a politician different from the one he was when he came to power. -Luis Hernandez Navarro

ALBA ensured Honduras a steady supply of 20,000 barrels of oil a day at preferential prices and interest rates.

The oil crisis that erupted in Honduras finally convinced Zelaya to change course. US companies, which monopolized the business of importing oil to the country, manipulated prices and created an artificial shortage in the fuel supply. Protests and strikes which left Honduras on the verge of a full-blown crisis made Zelaya temporarily expropriate oil storages owned by US companies. -Nil Nikandrov

Honduras also received a mass shipment of farm equipment, and had 40,000 Hondurans’ vision improved or restored by the Cuban-Venezuelan project, Operation Miracle. Thousands of Honduran adults were recipients of literacy training through the ALBA “Yes, I Can” Program.

Zelaya had fallen out of a lose-lose into a win-win situation. There would be a rapid resolution to a number of social problems, and now his embrace of the ALBA initiative mollified the growing left-upsurge in Honduras. At some point along the way, perhaps after seeing the most irrational denunciations of ALBA by his newly-found opponents, “Mel” Zelaya appears to have had a Damascene conversion. I can’t say whether that was the case or not with any certainty. But I am a witness to the existence of Damascene moments. Zelaya’s actions as he headed into his confrontation with the US and its Honduran colonial surrogates surely seem to be consistent with the kind of true belief that takes terrible risks.

Anatomy and Sequence of the Modern Coup

The Murder of Luis Rolando Valenzuela Ulloa



Valenzuela

On July 1, 2010, Adrienne Pine, and American academic and activist working in Honduras, penned her suspicions in an article for the online site “Honduras Culture and Politics,” called “Honduran suspicions of US complicity in the coup.” (Part 2) With the coup still shrouded in official secrecy, she was simply recounting what she heard on the Honduran street. One of the stories on the street was that Rolando Valenzeula had been murdered.

The North American ambassador accredited to Tegucigalpa, Hugo Llorens, did know about the coup d’Etat against Manuel Zelaya Rosales, the ex-minister of the Zelaya administration, Roland Valenzuela, revealed days before his death, in an interview broadcast by the journalist Ernesto Alonso Rojas, in a local radio station of the city of San Pedro Sula.

Valenzuela was an ex-Deputy (Congressman) and the ex-Minister for Sustainable Development in Honduras for President Manuel Zelaya. On June 15, 2010, he was shot to death in San Pedro Sula (a coastal Honduran metropolis), at a restaurant by San Pedro Sula oligarch (and now fugitive) Carlos Alberto Yacaman Meza, after what was described as a shouting match. Police initially withheld his name from the public, claiming that publicizing the name would “hinder investigations.” Yacaman has so far evaded capture by Honduran authorities, and is listed as an international fugitive by Interpol.

Honduran suspicions were only magnified by the ease with which the well-known and well-heeled Yacaman seemed to evade capture, by the daily reports of threats, beatings, shootings, and disappearances being committed by Honduran thugs working for the de facto government. Even with Iraq, Afghanistan, Colombia, and Palestine in the world, in 2010 Honduras was declared the most dangerous country in the world for independent journalists. But the key to popular suspicion about Valenzuela’s murder was an interview he’d given.

The interview, taped the first of May and broadcast by Radio Internacional of San Pedro Sula, regained importance after President Zelaya accused the US of forming part of the coup d’Etat, and Ambassador Llorens appeared denying his participation.

There was more to the interview, however, than mere accusation. Valenzuela said that he had proof that the draft decree for the coup on June 28th was presented to Ambassador Llorens for review on the 10th of June, two and a half weeks before the actual overthrow of President Zelaya. That draft was clearly pre-dat