PROGRESS OR DECLINE? THE PLIGHT OF WESTERN ECONOMIES WITH SPECIAL REFERENCE TO THE EU AND THE MEDITERRANEAN

7/31/2019 PROGRESS OR DECLINE? THE PLIGHT OF WESTERN ECONOMIES WITH SPECIAL REFERENCE TO THE EU AND THE

1/59

PAGE 1

PROGRESS OR DECLINE?

THE PLIGHT OF WESTERN ECONOMIES

WITH SPECIAL REFERENCE

TO THE EU AND THE MEDITERRANEAN

by

Sarah Gildea

A Thesis Submitted in

Partial Fulfillment of the

Requirements for a Degree of

Masters in

Religions and Cultures

Specializing in

Mediterranean Cultures

at

Pontifical Gregorian University

2012

D R A F T


2/59

PAGE 2

Contents

Introduction 3

Education 7

Different Cognitive Systems 12

The Importance of TraditionTradition As Identity 16Tradition as Fulfilling Human Needs 18

Confusing Means with Ends 24

Economic History 29

The Seeds of Globalization 301971 40The New Globalization 42

European Relations with Mediterranean Countries 50

Conclusions 52

Appendix I 54Bibliography 55

Introduction

Last year I attended a conference on the subject of the Mediterranean and the idea of a Euro-

Mediterranean Union. Comments from this conference have led me to further investigate the possibility

of such a union. Would it actually be beneficial to the Mediterranean countries? Why would the

European Union countries be interested in such a union? To answer these questions, I first needed to

get a historical picture of the two areas what are their 'track records', what have their relations been

like in the past? For this, I discovered two authors who became fundamental in my research: Carroll

Quigley and Ann Pettifor.


3/59

PAGE 3

Carroll Quigley was a famous professor from Georgetown University1 in the United States, who

taught courses on the history and development of civilizations in the School of Foreign Service at the

university. This subject is probably better known as Universal History, or Historiography. His thoughts

were influential with the U.S. Department of Defense and other government entities in the 1960's and

1970's, and many powerful and influential American politicians were his students. His knowledge,

observations and experience cover the whole of man's activities.

Most readers will be unfamiliar with Dr. Quigley. His most important books for our topic are

The Evolution of Civilizations and Tragedy and Hope. Quigley was a historiographer who wanted

our understanding of history to be more scientific, so he began by applying the scientific method to the

social sciences,2 and from this he was able to distinguish seven stages of historical change which can be

witnessed for all civilizations.3

Before going into more detail, we first need to be reminded that most scientific 'laws' are not

statements of what actually happens in the world, but are idealized and perhaps at times, oversimplified

relationships between things or ideas. The scientific 'laws' of Galileo or Newton were of this character.

The planets, in fact, do not follow the laws of planetary motion as described by Newton, except in an

approximate way (and for this, it's best to not even look at the planet Mercury). This same observation

applies to the Social Sciences, and even more so. If in the first case, we have a science of unintelligent

phenomena that follows a certain patterns only generally, how many more variables will enter in to a

science which relies on human action, thought and emotion?4

Knowing this then, Dr. Quigley recognized that there were certain patterns of human behavior

that repeated themselves throughout history, and if we could recognize from these patterns where we

1 Georgetown has the single largest percentage of alumni in Marquis Who's Who.

2 Intellectual, religious, social, political, economic and military sciences.

3 C. QUIGLEY, TheEvolution of Civilizations , Macmillan Press, NY, 1961, page 2. Labeled as Mixture, Gestation,Expansion, Conflict, Universal Empire, Decay, and Invasion.


4/59


5/59

PAGE 5

The Mediterranean has always been the center of the world. They are the gateway for trade

between the East and West, the South to the North. All reason therefore, should tell us that those

countries, united, should be the economic power of the world but they are not. From approximately

600AD the area has been torn apart through wars and religious division, the Christians and Muslims

both responsible for the destruction, and world wars for which they had very little responsibility. Their

culture, creativity, sense of learning and adventure crumbled to what some call an amoral familism -

a mere shadow of their former intellectual, artistic and ethical greatness for which they had been

known.

The Mediterranean area went through their period of Gestation, Expansion, Conflict, Empire,

Decay and Invasion. The civilization which took their place in greatness and power was Europe.

European countries also went through their periods of Gestation, Expansion and Conflict ultimately

to arriving at two World Wars.

The European Union was initially founded in 1952 to prevent further wars between these

countries, and to increase economic security within the member states. A certain economic criteria had

to be met by member countries, but this criteria didn't need to be met until after their entrance. When

the European monetary union was agreed upon in 1991, only two countries met the criteria: Luxemburg

and Finland.8 The other countries 'promised' to meet the criteria after their entrance. They never did.

Unfortunately, the creation of the European Union as a way to solve financial problems was

nothing more than shuffling the same old deck of cards, done in a rather hurried fashion, with the

benefit that member countries would have easier access to loans from the IMF (International Monetary

6 C. QUIGLEY, TheEvolution of Civilizations , page 15.

7 No one wants to admit that their country may be in decline, or that mistakes were made that need to be addressed.

8 Special Report: The Emu Criteria, http://news.bbc.co.uk/2/hi/special_report/single_currency/66945.stm AccessedJanuary 17, 2012.


6/59

PAGE 6

Foundation). This gave the false impression of economic growth, and gave the IMF, a non-elected

body, more political power. The EU member states only weakly addressed and only temporarily

resolved the real issues of their own declining countries, each counting on the other to carry the weight

of the rest. The truth is, the strongest of the European countries England, France, Germany have

very little experience at working at a true economic system. Their means of expansion in the past had

been through invasion and colonization. During the height of colonialization in the United States,

England possessed 39% of all shipping in the world. In 1922, they held sway over almost a quarter of

the Earth's total land mass and were the largest colonial empire in the world. The French colonial

empire was the second-largest in the world, yet today, both struggle with the rest of the European

countries for a stable economy.

What happened to all of their tremendous wealth? In the opinion of Dr. Quigley, in the case of

England, the government wasn't paying attention. The Industrial Revolution spread from them to

Europe and the United States, to South America and to Asia. Then, World War I occurred. If there is

any one way for a rich country to become poor, it is through war. Instead of being a creditor, England

quickly became a debtor to the United States financial institutions.9 Then, the financial institutions

took over.

What we are observing is that the European Union countries are following Dr. Quigleys' 7

Stages of Historical Change, they are currently in the period referred to as Decay, and therefore any

union with them would have to be made in very careful steps, to insure, for example, that the

Mediterranean countries don't simply get pulled down further into decay with the EU.

To further demonstrate the validity of these observations, the next few chapters will be devoted

to providing examples of social and cultural decay within the EU (and the United States). These

examples will include the fields of Education, the recognition of differing Cognitive Systems


7/59


8/59


9/59


10/59

PAGE 10

centuries you have what I call misplacement of satisfactions. You find your emotionalsatisfaction in making a lot of money, ...19 or in a host of rather meaningless exercises.

Jacob Viner once noted that people are not narrow in their intellectual interests by nature; it

takes special and rigorous training to accomplish that end.20

What I believe is lacking in many public schools and universities today is something the ancient

Greeks called . This could be simply translated as education, but education in the Greek

mind meant more than studying only the basics. Education for the ancient Greeks wasn't about simply

learning a trade that, they considered ; we might be tempted to translate this as 'banal', but

it etymologically refers to mechanical tasks unworthy of a learned citizen.21 Since the ancient Greeks

strongly believed in self-government, their education also included rhetoric, philosophy, natural

history, geography, as well as ethos - good habits. This training, they believed, made a man good and

made him a capable citizen or king.

Have the courage to use your own intelligence.22 This is the motto of the Enlightenment.

Timothy Leary also boldly bleated out, Think for yourself. Question authority. These statements

weren't made to inspire actual intellectual development; they were made to impose the writers' own

ideology over the current one. Unless one has a proper educational formation, how will he know what

questions to ask? How will he see through complex terminology, the vague phrasing, the intentional

manipulation of authors, the contradictions? How can one presume to call into question a system that

they don't understand?

19 C. QUIGLEY, Lecture, "Public Authority and the State in the Western Tradition: A Thousand Years of Growth, A.D. 976 -

1976, Georgetown University, 1978.

http://www.carrollquigley.net/Lectures/The-State-of-Communities-AD-976-1576.htm Accessed January 19, 2012.

20 E. HELLEINER, States and the Reemergence of Global Finance, From Bretton Woods to the 1990s , London: Cornell

University, 1994. page vii.

21 Paideia http://en.wikipedia.org/wiki/Paideia Accessed February 13, 2012.

22 I. KANT, Risposta alla domanda: che cos lilluminismo? 5 dicembre 1783. Traduzione dalloriginale tedesco diFrancesca Di Donato.


11/59

PAGE 11

In the Italian language, 'education' and 'culture' appear almost synonimous, and one can only tell

the difference by the context of the sentence. In the English language, we might say a man is 'cultured',

but the presumption is that he is not only educated he is rich. However, the word culture originally

stems from the Latin and was linked to agriculture, and by this is meant the way of life of the people. If

the ancient Romans had been primarily hunters instead of farmers, we might have ended up with a

word (and perhaps an attitude) that was very different from 'culture'. In Italian, this understanding has

developed over the centuries to signify not just civilization, but also knowledge.

Herman Daly wrote that few colleges and universities teach economic history, because

exploring this history ... might expose the frailties and fallacies of economic assumptions that the

profession likes to regard as universal and timeless.23

Lional Curtis wrote, back in 1916, that responsible government

... can only be realized for any body of citizens in so far as they are fit for the exerciseof political power. In the Dependencies the great majority of the citizens are not as yetcapable of governing themselves and for them the path to freedom is primarily aproblem of education In this world commonwealth the function of government isreserved to the European minority, for the unanswerable reason that for the present thisportion of its citizens is alone capable of the task civilized states are obliged to assumecontrol of backward communities to protect them from exploitation by privateadventurers from Europe ...24

The Milner Group had the idea of Westernizing India through education, planning that the

Westernized Indians would in turn, help their backward Indian cousins. Instead, much more money was

spent on higher education than elementary, and those Indians who became Westernized either

23 A. PETTIFOR, The Coming First World Debt Crisis, NY: Palgrave Macmillan, 2006, page 123.

24 C. QUIGLEY, The Anglo-American Establishment, pages 64-65. Regarding the phrase, backward communities:

Although it may sound patronistic, we the basic intelligence of civilizations as those who are more technically

advanced. Those more technically advanced civilizations are naturally going to see themselves as much more adept atleading and governing those less developed civilizations.


12/59


13/59


14/59

PAGE 14

This American readiness to 'do it yourself' contrasts sharply with the Arabunwillingness to engage in any activity of this kind, or, in fact, to undertake any type ofmanual work. Americans like to do such work, while the Arabs of similar socio-economic status not only dislike it, but consider it actually demeaning.

31

No self-respecting Saudi would ever collect trash We leave it to the beasts.32

Arabs detest manual labor as strongly as they hold their scriptures precisely because of their

scriptures. In this case, Genesis, 2:17-19. Cursed is the ground for your sake. In toil shalt you eat of it

all the days of your life '. Why must man toil all his life? In the Arabic world where the Genesis

tradition was formulated, work is a curse. In the Middle Eastern ethic, therefore, from pre-biblical

times down to the present, the ideal has always been to escape the curse of work, to acquire riches

through a stroke of luck, by finding a treasure by buying something cheap and selling it at a high

price ...33

This is contrary to Western thought, which had embraced a Catholic ethic, believing that Jesus -

God, ennobled work by taking it on Himself. Work is therefore no longer a curse, but personally

edifying a means to salvation.

Differing cognitive systems is one reason why, in the case of the Mediterranean countries, there

has been a boundary conflict area between the three post-Classical civilizations (Byzantine, Western,

and Islamic) since A.D. 600. After having been the backbone of the Mediterranean civilization for

over a thousand years,

... the shift was so disruptive of community life in the area from the Golden River tothe Golden Road that its problems have not been solved since, especially in view of thesocial and ethical failures of the two post-Classical religions, Christianity and Islam These failures of religion made it impossible to create any religious, territorial, orsocial community, and forced living patterns back toward the 'amoral familism' of theextended family.34

31 R. PATAI, The Arab Mind, page 120.

32 J. PERKINS, Confessions of an Economic Hit Man, page 42.


34 C. QUIGLEY,Mexican National Character and Circum-Mediterranean Personality Structure. American Anthropologist,

75: 319-322. This quote is a summation of Raphael Patai's book, Golden River to Golden Road, from 1962.http://www.carrollquigley.net/Articles/Mexican-National-Character-Circum-Mediterranean-Personality-Structure.htm


15/59


16/59


17/59


18/59


19/59


20/59


21/59


22/59

PAGE 22

In the West today, religion has largely lost its function as an inner sustaining force ... most

Westerners do not feel the need to be saved, although they certainly feel insecure. Toynbee speaks of

'the spiritual vacuum which has been hollowed in our Western hearts by the progressive decay of

religious belief that has been going on for some two-and-a-half centuries.59

By contrast, in the Arab world, and in the entire Middle East, all religions have such spiritual

sustaining power. All share with Islam the 'characteristic of being able to generate a psychological

certainty of possessing the Truth, of following the Right Path, and of wielding the Perfect Key to the

gate of the Great Beyond'.60 Furthermore, a common theme of Arab writers and journalists is the

necessity for scrutinizing Western innovations, adopting what is beneficial and rejecting those that

are harmful. They want to modernize, but not at the expense of certain traditions. 61

This is not to say that retaining ones traditions is the key to economic success, but it is a key to

a healthy, vibrant community. Empires don't collapse because of deficiencies in the military or political

level they collapse because no one cares.

Because Europe has abandoned their traditions and refuses to reform itself in a true sense, they

can only blunder forward into an unexplored future (as in existentialist philosophy or in the

contemporary flood of writings on theology).... No solution is possible or conceivable unless it is

firmly rooted in our Western Christian heritage.

This does not mean going back to anything we had before, but it does mean going backto our roots in the past, and growing onword from those roots, which must be found in aperiod of our past before the alien gods of material affluence, of power-thirsting, of sex-obsession, of egotism and existential self-indulgence, became the chief ames of life,eagerly embraced, as they are by our 'trahison des clercs'.62

things, therefore, an economy.

59 R. PATAI, The Arab Mind, page 153. Patai is referring to Arnold J. Toynbee (1889-1975).

60 R. PATAI, The Arab Mind, page 153.61 M. Nydell, Understanding Arabs: A Guide for Modern Times, Fourth edition, Boston: Intercultural Press, 2006, page 7.


23/59


24/59


25/59


26/59


27/59

PAGE 27

European civilization is corrupt in its roots, no wholesome fruit can come of it. Itsdominant role is merely the consequence of the decline of Islam.78

Long study of the history of many social organizations has convinced me of one thing: when

any such organization dies be it family, business, nation, religion, civilization or university, the cause

of death is generally 'suicide.' Or, if we must be more specific, 'suicide by self-deception.'79

An example of this 'self-deception' can be seen in this next example - in this case, confusing the

consequence with the cause: The French and German governments had tried to convince the entire

membership of the European Union that they need to give up fiscal sovereignty, or else [face an

international financial crisis]. As Ann Pettifor explains, It is not the answer to the crisis. It's addressing

the wrong problem. It's addressing a problem of fiscal deficits which are a consequence of the financial

crisis, and it's thatwhich they should be addressing. They're not looking at the causes of the crisis,

which is a broken global banking system. Instead, they're looking at the consequences, and trying to fix

fiscal deficit, and that's not going to solve the problem.80

Our last example will be taken from a yet-to-be-published book from the University Santa

Croce in Rome. One of the authors is Michel Camdessus, former Managing Director for the IMF

(1987-2000), and a member of the Pontifical Commission for Justice and Peace, among other high-

level positions. The title of his article is From a 'Culture of Greed' to a Culture of Common Good. In

it, he states that this present economic crisis, is the first true crisis of globalization itself. Dr.

Camdessus seems to have forgotten the Great Depression.

We will see shortly that this is actually the fourth great, global economic crisis.81 Dr.

Camdessus also states that the cause of the crisis is a culture of greed, as if it is the entire world


79 C. QUIGLEY,Is Georgetown Committing Suicide?

80 A. PETTIFOR, Cross Talk with Peter Lavelle. Recorded December 6, 2011.

http://www.youtube.com/watch?v=UhByd7zSYzc Accessed January 21, 2012.

81 Other authors have counted many more 1873, 1884, 1890, 1893 and 1907, according to E. WICKER,Banking Panics of

the Gilded Age. Cambridge, 2000.


28/59


29/59

PAGE 29

Camdessus isn't entirely wrong our crisis is certainly the result of greed, but it's not common

consumer greed. It is a result of the greed of private financial institutions who have pressured and

manipulated the governments for over two centuries. His solution is to grant the IMF more political

power (they are a non-elected body), eliminate the veto power of the US and European countries on

critical issues, and to create yet another (unelected) committee to make critical global decisions. His

ideas would be great for the IMF and for bankers in general, but it would be disastrous for the general

population.

Economic History

Having briefly provided examples of social and cultural decay within the northern European

countries and America within the fields of Education, Tradition, Culture and Religion, we can now go

back and retrace European history, and perhaps discover exactly where the problem lies.

Dr. Quigley once told his class that there was little point in discussing the Third World when

they knew so little about how their own society works.84

The work of many economic historians has been very subjective based on their own

experiences or education, bur rarely on the history of economics itself or on the total capacity of a

given society. Francois Quesnay considered the economy as a system of interacting parts but he

considered only agriculture. For him, merchants, artists and manufactures added nothing to labor and

capital. Adam Smith, who saw Glasgow transformed by trade and industry, saw the economy in terms

of labor, discovering that ten men making a pin will make more pins per day than one man making a

http://www.primeeconomics.org/?p=635 Accessed February 18, 2012.84 C. QUIGLEY, Weapons Systems and Political Stability: A History, Washington: University Press of America, Inc., 1983,


30/59


31/59

PAGE 31

way of economic knowledge or understanding.89 The goal of Economics is to understand how

business activities fit into the broader picture of our society. The field of business, by contrast, takes an

exclusively how-to approach.

90

Globalization begins with this select group of individuals, they controlled almost every aspect

of it, and each period of globalization has ended disastrously. The first period was a time when Britain's

finance sector was bankrolling railway, commodity and mining projects around the world.91 Europe

was able to produce its own iron, steel, and copper to build its own railroads and telegraph wires, but

the non-European world could construct these things only by obtaining the necessary industrial

materials from Europe and thus becoming the debtor of Europe.92

Some members of the group (until 1931, at least) believed that the key to all economics and

prosperity was considered to rest in banking and finance.93 The first part of the group prevailed in

English politics until 1931, then the second part of the group prevailed until at least 1945.

To protect their loans, London bankers needed an international financial system that would

guarantee the value of loans made,94 and guarantee the value of the repayments. They needed a

standard framework that would not fluctuate because it rained too much or not enough in any given

locality. The system selected was the 'gold standard', and the men in charge were not prime ministers

and presidents they were international bankers who wrote the rules of international trade.

International bankers prefer to loan to governments and kings because it is more profitable than loaning

to private individuals. The loans are larger, and are secured by the nations' taxes. These men included

89 Ibid.90 M. LIEBERMANR.HALL,Introduction to Economics, page 2.

91 A. PETTIFOR, The Coming First World Debt Crisis, page 30. Specifically, the first railways were completed in England

in 1830, Canada (1832), India (1855) and Pakistan (1861).

92 C. QUIGLEY,Tragedy and Hope, page 28.

93 C. QUIGLEY,The Anglo-American Establishment, page 122. Milner himself however, insisted that financial questions

must be subordinated to economic questions and economic questions to political questions. As a result, if a deflationary

policy, initiated for financial reasons, has deleterious economic or political effects, it must be abandoned.94 A. PETTIFOR, The Coming First World Debt Crisis, page 30.


32/59


33/59

PAGE 33

During the period 1880-1914, financial, trade and labour markets continued to be liberalized,

leading to a globally integrated economy,99 but also draining the natural resources of third-world

countries in favor of the more powerful European countries. At the same time, rather than sideline or

minimize the role of the state, the gold standard before and after 1914 'had the ironic effect of

intensifying the importance of the nation as a unified entity'.100 Britain didn't notice the changes that

were taking place in Germany until Germany started to outdo them in sales, service and quality of

goods. Germany started acquiring African colonies and were actually the ones who encouraged the

Boers in their war against Britain.101 Strange alliances began between nations (for financial and

strategic reasons), wars started between Eastern European countries, squabbling initiated over which

European country would colonise which part of in Africa, and a few accidents took place which fueled

popular hysteria between nationalities - the assassination in Austria was a relatively minor event, which

alone, wouldn't have started a world war.

Beginning in 1914, this war once again brought to an end the system that had been so carefully

put in place by London's bankers.102 Because of this second great economic crisis, politicians finally

subordinated the interests of finance through controls over the movement of capital and goods.103

Legislation blocked international transactions and the export of gold was either banned or heavily

restricted.

In late 1918, the first World War ended, and the bankers immediately began again to wrest

control of the financial system. Winston Churchill and others were subject to unrelenting pressure

99 Ibid, page 34.

100 Ibid, page 34, quoting Block, F., 'Introduction' to the new edition ofThe Great Transformation by Karl Polanyi.

Beacon Press, 2001.

101 C. QUIGLEY,Tragedy and Hope, page 187.

102 A. PETTIFOR, The Coming First World Debt Crisis, page 34.103 Op.cit., page 35.


34/59

PAGE 34

from Montagu Norman, Benjamin Strong, governor of the Federal Bank of New York, and other

Federal Reserve officials.104

The Treaty of Versailles concluded (among many other things) that Germany was at fault for

the war.105

Under great pressure in 1921, Germany accepted the reparations bill of 132 billion marks.

82 billion was forgiven, but Germany was expected to pay on the other 50 billion at a rate of 2.5

billion a year in interest and 0.5 billion a year to reduce the total debt.106 The German government,

probably resentful at being forced to accept these arrangements, refused to reduce its own expenditures

and made little effort to reduce their spending on imports; for there part, creditors refused to allow a

free flow of German goods (Britian charged a usurious 26% tax on imports from Germany), and they

refused to accept the goods as payment.107 The Dawes plan followed,108 adding the ability for Germany

to make further loans (not adjusting the principle), which put them even further in debt after five years.

Germany paid 10.5 billion marks in reparations but borrowed abroad a total of 18.6 billion marks.

Nothing was settled by all this, but the international bankers sat in heaven, under a rain of fees and

commissions.109 And, everything continued on this course, until the U.S. stopped lending.

The crisis of the 1920s and 1930s had taught western societies grave lessons about the folly of

allowing 'the money-lenders to take over the temple' the main theme of President Franklin D.

104 Ibid, concurs with C. QUIGLEY, Tragedy and Hope, page 67:

Naturally, the influence of bankers over governments during the age of financial capitalism (roughly 1850-1931) was

not something about which anyone talked freely, but it has been admitted frequently enough by those on the inside,

especially in England. In 1852 Gladstone, chancellor of the Exchequer, declared, 'The hinge of the whole situation wasthis: the government itself was not to be a substantive power in matters of Finance, but was to leave the Money Power

supreme and unquestioned.' On September 26, 1921, The Financial Times wrote, 'Half a dozen men at the top of the Big

Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills.' In 1924 Sir

Drummond Fraser, vice-president of the Institute of Bankers, stated, 'The Governor of the Bank of England must be theautocrat who dictates the terms upon which alone the Government can obtain borrowed money.'

105 "Un'assurdit internazionale": in questi termini poco diplomatici che Eugenio Pacelli nell'agusto 1920 giudicava

"quella che viene chiamata la 'pace' di Versailles." P. CHENAUX, Pio XII. Diplomatico e pastore, Paris: Edizioni San

Paolo, 2004, page 111.

106 Op.cit., page 263.

107 Ibid, page 264.

108 Largely a J.P. Morgan production (C. QUIGLEY,Tragedy and Hope, page 265), ... the Milner Group has alwayshad very close relationships with the associates of J.P. Morgan and with the various branches of the Carnegie trust. (C.


35/59

PAGE 35

Roosevelt's inaugural speech, in 1933 at the height of the international financial crisis.110 His speech

has a contemporary resonance: The measure of the restoration lies in the extent to which we apply

social values more noble than mere monetary profit. They [financial institutions] know only the rules of

a generation of self-seekers. They have no vision, and when there is no vision the people perish.111

By 1925, all of the most important economies of the world were once again tied to the gold

standard.112 Most countries were in a hurry to go back. The US went first, because they had the

advantage of a large supply of gold. Britain was next, but they weren't so lucky. Churchill didn't know

that speculators saw the pound rising and started selling their dollars to buy pounds, driving the value

of the pound up faster than it was actually worth, which discouraged exports. He brought Britain back

into the gold standard, only to find that the pound was overvalued and their gold reserves were low.

Unions protected their wages, and taxing the upper classes failed since they were in control of the

government. Britian went into deflation, and only after many years reached stabilization. Belgium and

France on the other hand, devalued their currency which encouraged exports. Mussolini overvalued the

lira higher than the French franc for the simple motive of prestige, which hurt Italy's economy.113

After all the major countries re-accepted the gold standard, it only took - this time - four years

before the New York Stock Market crashed. It was bankers, British and foreign, who dictated the

QUIGLEY,The Anglo-American Establishment, page 183).

109 C. QUIGLEY,Tragedy and Hope, page 266. The Young plan followed after the Dawes plan.

110 A. PETTIFOR, The Coming First World Debt Crisis, page 26.

111 A. PETTIFOR, ed.,Real World Economic Outlook, page 8. Roosevelt is the only US president elected to four termsin office (1933 1945).

Primary source: Franklin D. Roosevelt, First Inaugural Address, http://www.bartleby.com/124/pres49.html Accessed

January 9, 2012.

112 Op.cit., page 36. Also, C. QUIGLEY,Tragedy and Hope, page 282, where Quigley clarifies, ... the financial efforts

of the period after 1918 became concentrated on a very simple (and superficial) goalto get back to the gold standard

not 'a' gold standard but 'the' gold standard, by which was meant the identical exchange ratios and gold contents that

monetary units had had in 1914.113 C. QUIGLEY,Tragedy and Hope, pages 286-287.


36/59


37/59

PAGE 37

The chief cause of World War II was the banker-engendered deflationary crisis of 1927-

1940.121 Some say it was Treaty of Versailles itself, but the decisions made there didn't have to be

carried out with such rigor. The leading characteristic was an extraordinary willingness to borrow

money for the purposes of new real investment at very high rates of interest rates of interest which

were extravagantly high on pre-war standards, which have never in the history of the world been

earned.122 It weakened both the democratic and parlimentary systems, prolonging the war by the early

defeats of these states, and gave the energy necessary for aggression in those countries where the

government did collapse.

During the Second World War, and in the immediate post-war years, politicians and

economists tried hard to restore stability and equity to the international financial system.123 If we get

through the present crisis and are given a further chance to try and put the world in order, we shall then

feel a need to take a broader and deeper view of our problems than we were inclined to take after the

War of 1914-1918 ...124

dominated by two (I. G. Farben and Vereinigte Stahl Werke); the United States was dominated by two (Morgan and

Rockefeller). Other countries, like Italy or Britain, were dominated by somewhat larger groups. C. QUIGLEY, Tragedy

and Hope, page 458.121 Ibid, page 309. Hitler wanted revenge for what took place after the the Treaty of Versailles. He didn't care about

Jews until the Austrian bank collapsed.

A. HITLER,Mein Kampf, London, Hurst and Blackett Ltd, English translation, 1939:

As I thought that they [Jews] were persecuted on account of their Faith my aversion to hearing remarks against them

grew almost into a feeling of abhorrence. I did not in the least suspect that there could be such a thing as a systematic

anti-Semitism. Then I came to Vienna. pages 52-53.

... the present Reich has no other possible means of bearing the burden of charges which an insane domestic and

foreign policy has laid on it. Here still another wedge is placed on the former, to drive it in still deeper. Every new debtwhich the Reich contracts, through the criminal way in which the interests of Germany are represented vis--vis foreign

countries, necessitates a new and stronger blow which drives the under wedges still deeper. That blow demands another

step in the progressive abolition of the sovereign rights of the individual states, so as not to allow the germs of

opposition to rise up into activity or even to exist. pages 435-436.Hitler was not a trained politician; he was a trained soldier, and reacted to the financial pressure by doing what soldiers

do - attacking those he thought responsible not only the Jews, but also the French and English rather than challenge

those responsible for the crisis, or to transform the international financial system.

- A. PETTIFOR, The Coming First World Debt Crisis, page 96.

122 A. PETTIFOR, The Coming First World Debt Crisis, page 38, quoting John Keynes.

123 A. PETTIFOR, ed.,Real World Economic Outlook, page 8.

124 C. QUIGLEY,The Anglo-American Establishment, page 309, quoting a letter by Toynbee to the Council of theRoyal Institute for International Affairs.


38/59

PAGE 38

They had learned that unrestrained capital flows led to financial instability and ... financing old

liabilities with new liabilities ... were incompatible with, and hindered free trade.125 The bankers, not

the least embarrassed or inhibited because of the damage they had done, dominated U.S. Foreign

economic policy and tried to create a more open international financial order by applying more

aggressive pressure on Western European countries to liberalize their exchange controls ...126

Towards the close and continuing after World War II, the northern powers began to lay their

foundations for the post-war world. A series of conferences were held, and these are the meetings

which created such international organizations as FAO, UNESCO, the UN, the IMF, the World Bank

and the Bretton Woods system of economics. The most important aspects of this system for our

concerns was that it imposed controls over the movement of capital exchange controls, and restored

to governments the power to fix interest rates, which gave them policy autonomy and allowed them to

cut back on foreign imports and balance these with exports.127

The IMF was created to supervise these arrangements, to act as emergency lending to countries

with temporary difficulties, and also to negotiate any necessary changes to fixed exchange rates.128

However, what the members of the IMF really wanted was complete power to run as much of the world

as possible. John Maynard Keynes ... wanted the IMF to have a matching power to draw funds from

countries with surpluses to give it the even-handed capacity to maintain international equilibrium

between counties. The US, at that time the only surplus country, vetoed this proposal.129

125 Op.cit.

126 E. HELLEINER, States and the Reemergence of Global Finance, page 6.

127 The Bretton Woods system was by no means perfect, but it led to a period of economic and social stability .

elected governments and their people were put in the driving seat. The movement of capital was regulated and

provided the means and mechanisms for governments to set interest rates. Britain's Labour government, led by Clement

Attlee, attempted a deliberate cheap money policy.A. PETTIFOR, The Coming First World Debt Crisis, page 27.

128 Ibid, page 37.129 Ibid page 38.


39/59

PAGE 39

At the same time, those in the banking and finance industry were determined to get the financial

system back under their control.130 Just as Churchill had been pressured after World War I,

Attlee's Chancellor Hugh Dalton, who succeeded in nationalizing the Bank of England,was ... challenged by Finance, in the shape of the City of London. In his memoirs hewrote: 'The forces against me, in the City and elsewhere, were very powerful anddetermined I felt I could not count on a good chance of victory. I was not well armed.So I retreated.131

When the European Monetary Union was founded, not 50 years later, the IMF asked for and

received substantially what had been rejected by the US, and was rejected by Britain, about twenty-two

years ago:

Yes, the Commission [IMF] does want to increase its powers. Yes, it is a non-electedbody, and I do not want the Commission to increase its powers against this House. Mr Delors, President of the Commission,132 said in a press conference that he wantedthe European parliament to be the Democratic body of the Community, he wanted theCommission to be the Executive, and he wanted the Council of Ministers to be theSenate. No! Or, perhaps the [British] Labor party would give all those things up easily? Perhaps being totally incompetent with monetary matters, they'd be only toodelighted to hand over the full responsibility as they did to the IMF to a centralbank. The fact is, they have no competence in money, no competence on the economy,so yes, the right, honorable gentleman would be glad to hand it all over. What is thepoint of trying to get elected to parliament, only to hand over your sterling, and to handover the powers of this House to Europe?133

Every economic system has to be regulated. That is, somehow, decisions must be made as to

what is produced, how much of it, and who gets it.134 Every other aspect of our life also engages some

type of regulation; job duties and responsibilities, personal diet and exercise, studies and tests before a

diploma, driving rules and tickets for infractions against driving laws, proper conduct at a restaurant,

130 After the war Keynesian policies for the management of interest rates were gradually abandoned, under great

pressure from the finance sector. Ibid, page 74.

131 Ibid, page 27.

132 French Economist, President of the European Commission from 1985-1995.

133 Margaret Thatcher's statement of 30 October 1990 to the House of Commons on the European Council meeting at

Rome held on 27/28 October. http://www.youtube.com/watch?v=U2f8nYMCO2I Accessed January 16, 2012.134 C. QUIGLEY, The Evolution of Civilizations, page 384.


40/59

PAGE 40

and moral and religious beliefs are regulated by that particular religion. The same must also be said for

economics.

Broadly speaking, between 1945 and 1975, governments did their best to restrict imports to

what they could pay for Per capita GDP growth in Latin America, for example, in the years from

1960 to 1980, rose by 80%. By contrast, per capita GDP growth in Latin America since liberalization in

1980 has risen by only 10%.135 Citing the WTO, the IMF notes that annual growth rates in world

trade reaching 12% a year between 1951 and 1975, but never rose above 10% after 1975.136

We must be honest and say that the Cold War was also responsible for some of this economic

success. The Cold War allowed the build-up of arms (which made up for what was lacking in consumer

spending), the development of more sophisticated machinery, and the occasional small war. Quigley, in

comparing the domestic politics of 1929 and 1957 noted, the graduate of June 1929 was eager to

get out into the prosperity rat-race, while the graduate of June 1957 is hesitant to leave the relative

quiet of academic life. The goal of the new alumnus has shifted from riches to security.137

1971

As mentioned earlier, British financers did very well for themselves in the 1800's colonizing

Africa, India, and had completed the Suez Canal by 1869. They fell into huge debt with the US as a

result of WWII. To pay these loans, the US demanded of Britain that it pay its debts by selling off

gold reserves and international investments. This considerably weakened Britain's position as a world

power.138 Twenty years later, partially as a result of the Korean and Vietnam wars, the US became a

huge debtor. In 1971, President Nixon declared that the US would no longer conform to the Bretton

135 A. PETTIFOR, The Coming First World Debt Crisis, page 39. See Appendix I for an understanding of what Gross

Daily Product truly encompasses.

136 Ibid, page 27.137 C. QUIGLEY,Politics. SFS yearbook Protocol, 1957. http://www.carrollquigley.net/Articles/Politics.htm


41/59

PAGE 41

Woods system (the US would not deplete their gold reserves to pay debts). Not only did they default on

all of their foreign loans, Nixon declared that creditors should offer new loans to the US, and in

exchanget, the US would offer Treasury Bills a receipt for the debt. It is through this maneuver that

the dollar became the global reserve currency and today, instead of holding gold reserves, all countries

mainly hold low-cost loans to the US (Treasury Bills) as reserves. Rich and poor countries alike

hold these Treasury Bills in their central banks, as evidence of their creditworthiness, and of the health

of their economies.139

All of this comes about, not as a result of several meetings over a period of months or years,

with a committee of scholars or responsible government leaders, or experienced economists, but by a

country who was able to default on their loans and get away with it because they were so large and

important in the global economic market.

Since 1970 the world has changed beyond recognition. ... Banks and finance centers are

the centers of the cities now [no longer churches, or even community centers], and finance companies

do business around the clock, all a result of the experiment known as 'globalization' or market

liberalism ...140 Quite simply, financial globalization has taken place because it is in the interests of a

small elite of politically and economically dominant people who have done extremely well out of it

...141

Today, our exchange rates are determined by financial flows as opposed to the balance of

trade.142 Removal of these controls allows owners of money to move their funds to any part of the

world. Naturaly, they move it to where returns, profits, or capital gains were highest. This made them

richer, but also more powerful. In 1970, 90% of international transactions were accounted for by

Accessed January 9, 2012.


139 Ibid, page 42.140 A. Pettifor, ed.,Real World Economic Outlook, page 5.


42/59

PAGE 42

trade: 10% by capital flows (the movement of money). Today, we have a complete reversal: 90% of

transactions are accounted for by financial flows not directly related to trade in goods and services.143

Before 1970, investors - owners of money - could only invest in engineering or

manufacturing within their own country. Now, with this control removed, these owners of money can

invest in any manufacturing anywhere in the world. We could invest in General Motors in the US, but

we won't make as much profit as we would investing in Toyota in Communist China (where citizens

are treated as slaves, and, we will take our profit the new capital out of China and invest it in stock

somewhere else). If GM wants our investment money, we can pressure them to do better, or threaten

to take our money somewhere else. It is this very attitude and 'freedom' that pressured CEO's and

managers to manipulate their balance sheets; to inflate the real value of their companies144 and other

such tricks. This is also why there hasn't been any growth with finance-led globalization -

companies have been reducing their levels of investment in order to increase dividend payouts to

aggressive shareholders.145 Ninety percent of the economic growth that we read about in the

newspaper is through banking.

The first of the policy changes required by the economists was that government

regulations are removed over capital, over lending and borrowing, and over the creation of different

financial instruments.146 This began in the 1980's, when consumers could suddenly finance home

entertainment systems, power tools, musical instruments, and even cell phones. The average consumer

didn't pay much attention to the interest rates, which could be as high as 25%. Especially important for

the economists was that controls and regulations were removed over capital moving across national

141 Ibid, page 31.

142 Ibid, page 47.

143 Ibid, page 14-15.

144 Ibid, page 15.

145 Ibid, page 39.146 Ibid, page 12. This began in the US under Ronald Reagan, and in Britain, under Margaret Thatcher.


43/59

PAGE 43

boundaries. Most governments agreed to this except two, who also happen to have the highest

officially recorded rates of economic growth in the recent past.147 These countries are India and China.

The New Globalization

Some observers believe the 'new Milner' is Friedrich A. Hayek. He won the Nobel Prize in

Economics in 1974 for his pioneering work in the theory of money and economic fluctuations and for

their penetrating analysis of the interdependence of economic, social and institutional phenomena.148

It was he who approached politicians in Britain, and through the perseverance of he and his colleagues

(the Mont Plerin Society), re-educated politicians both right and left in the virtues and powers of

market liberalism. When we hear our politicians pushing for 'reforms' of the financial system, labor

markets or trade they actually mean fundamental changes both to social and political relationships,

and their impact in the past has been revolutionary.149 These reforms follow the laissez-faire policies

desired by these economists, which in reality means, 'leave us alone'.150

When the politicians and governments changed their policies and removed these regulations,

they abandoned their responsibility for managing finance, for preventing crises, for managing their

country's exchange rate, and for protecting the weak, immature, the elderly, the unemployed and, the

147 Ibid.

148 "Laureates, 1974", http://www.nobelprize.org/nobel_prizes/economics/laureates/1974/index.html Hayek sharedthe award with Gunnar Myrdal. Accessed February 19, 2012.

149 Op.cit., page 11.

150 Just as the negative idea of the nature of evil flowed from the belief that human nature was good, so the idea of

liberalism flowed from the belief that society was bad. For, if society was bad, the state, which was the organizedcoercive power of society, was doubly bad, and if man was good, he should be freed, above all, from the coercive power

of the state. Liberalism was the crop which emerged from this soil. In its broadest aspect liberalism believed that men

should be freed from coercive power as completely as possible. In its narrowest aspect liberalism believed that the

economic activities of man should be freed completely from "state interference." This latter belief, summed up in the

battle-cry "No government in business," was commonly called "laissez-faire." Liberalism, which included laissez-faire,

was a wider term because it would have freed men from the coercive power of any church, army, or other institution,

and would have left to society little power beyond that required to prevent the strong from physically oppressing theweak. C. QUIGLEY,Tragedy and Hope, page 35.


44/59

PAGE 44

infirm.151 They no longer protected the nave from slick sales gimmicks that provoked poorer citizens

into financing products and homes at ridiculous interests rates, in order to keep up appearances with

their richer acquaintances.

152

Today, because of the restrictions that were lifted, credit is created from nothing. It is created on

demand when a corporation or country applies for a loan from a commercial bank. The commercial

bank does not have billions of dollars locked up in its vaults. When a loan is approved, this money is

then printed ex nihilo and then interest rates are charged on top of that principle. The bank pays an

interest rate to the printing bank (the central bank), and passes that charge (along with their own

interest rates, processing fees and other charges) to the borrower and there is no legal limit to how

much interest they can charge. The rate of interest is set by the central bank, and it is nothing more than

a social construct, varied only by rational choice.153 In 1978 for example, the Bank of England's

Minimum Lending Rate was 6.6%. In 1979, capital controls were lifted, and the Bank rate was

15.6%.154

As payments are made, the bank then gets an increase in actual, physical cash they have given

the lender only numbers in an account balance credit the banks know they only need about 1% of

the loan in actual cash at the bank location, and can have the currency printed on demand if need be. If

a country falls behind on their payments, banks then charge additional fees. If it was an IMF styled


152 In 1977, the Community Reinvestment Act was passed in the US. Deregulation begain in 1980. Mortgage

activity grew at least 25% a year from 1994 2003. The US government encouraged banks to provide loans to peoplewho could not afford them. Called the subprime mortgage, the plan was designed to create affordable housing, but

many of the people who were given these loans weren't actually qualified to receive them. This also gave a very false

impression of economic well-being of the country. These worthless loans were translated into 'mortgage-backed

securities' that were sold to other unsuspecting investors until there was no one left to buy them. Both the government

(for allowing it) and the banks (for pushing for the reform, and then taking advantage of it) were responsible for the

economic problems that emerged from this. And, England did the same thing.

153 A. PETTIFOR, The Coming First World Debt Crisis, page 70.154 Ibid, page 75.


45/59

PAGE 45

loan, restrictive measures are added to the increased debt burden, making it all the more difficult for a

country to repay the loans.

Therefore, if a country defaults on their loan, they have actually not hurt anyone. No one suffers

a loss of100 billion dollars only the cost of printing and other paperwork involved. It is all just

numbers in a computer. This is why it is possible to cancel billions of dollars in debt owed by a

country. This type of financing is the new capital. The bank takes no risk the borrower believes he

can pay the loan from the sale of their natural resources, or by raising taxes on the citizens. The

problem with natural resources is that it can run out, or a larger, cheaper supply might be found

somewhere else, driving prices lower. If workers can't work, there is little point in raising taxes.

Before 1970, governments allocated resources for the weak and defenseless in society public

transport, cultural activities and communication, for example. Today, these roles are being 'privatized'

or 'marketized' in many countries, including Europe. The allocation of resources for health, clean

water, sanitation, education, pensions, scientific research, transport, broadcasting, sport, culture,

mineral extraction, and marketing are but a few of the government functions that, in many countries,

are now carried out by 'the invisible hand of the market'.155 Remember, this is not the 'invisible hand'

that Adam Smith wrote about, where the poor benefit from the gluttany of the rich this 'invisible

hand' is the finance industry who sets interest rates and tells states they must privatize water (for

example) in order to re-pay their high-interest loans.

This is a grave concern, especially in developing countries, because the void left when these

resources aren't allocated to the weak and poor can easily be filled by Non Governmental

Organizations, such as extremist groups, who thrive most when economic times are hard for ordinary

people.156

155 A. PETTIFOR, ed.,Real World Economic Outlook, page 17.156 Ibid.


46/59

PAGE 46

Global marketshave acted to extract and transfer assets from poor countries to rich countries ... Thispolarization and divergence is not accidental or 'natural'. It is not because humaningenuity, geography, new technology, and advancement are preset in one part of the

world, and lacking in others. Instead, it is a direct consequence of the remarkableeconomic experiment of market liberalism, which has brought our world to a point ofgrave peril.

157

This 'grave peril' is witnessed in a world made insecure by rises in crime, random violence,

opportunistic diseases, and the threat of nuclear weapons.158

Textbooks tell us that capital should flow from countries in which it is plentiful the rich

world to those in which it is scarce the poor world. But the opposite is happening.

159

Even the

World Bank has admitted this. The poor are indeed financing the rich, through loans made to them at

high interest rates, besides being required to purchase Treasury Bills low-interest loans to the US. In

2001, developing countries paid a total of $122 billion in interest payments on their debt, and $55

billion in the form of profits sent back home by multinational corporations.160 This accounted for

about 3% of their GDP, and does not count 'capital flight' from those poor countries, (talented people,

like doctors or lawyers who leave the country) which, in 1994 was estimated at some $122.4 billion

for all developing countries.161 The flow of resources from the poor South to the rich North has

increased steadily.

Unfortunately, there is a real paucity of reliable global data on inequalities in wealth.Institutions such as the World Bank, the IMF, and the UN have let us down badly; theydo not collect the required figures, arguing that it would be too difficult to provide anaccurate assessment. But in our view, there may also be another motive; if the numberswere made available, the polarization in wealth would be too unpalatable for words.162


158 Ibid. These destructive and frightening consequences are not very different from the consequences of a similar

experiment in market liberalism, tried out in the 1920s and 1930s but abandoned between 1945 and 1970.

159 Ibid, page 34

160 Ibid, page 35.

161 Ibid, page 36.162 Ibid, page 33.


47/59

PAGE 47

A long time ago Henry Ford wrote, It is well enough that people of the nation do not

understand our banking and monetary system, for if they did, I believe there would be a revolution

before tomorrow morning.

163

Robert Lucas asked the question back in 1990 with his article, Why Doesn't Capital Flow from

Rich to Poor Countries?164 Sebastian Dullien also seemed somewhat surprised to note that, in many

cases, net capital flows have reversed and are now flowing from developing and emerging countries

towards the rich world, especially towards the United States, United Kingdom, Australia and Spain. 165

The power of these international finance markets, like the the power of the IMF, have stripped

governments of their political autonomy. Governments are obliged to implement policies effectively

dictated by foreign creditors/investors.166 Governments, according to 'neoliberal economists'167

should divest themselves of power, transferring control to unaccountable markets, including financial

markets.168 This explains why the European Union can make loans to countries like Nicaragua,

conditionalon legislating legalized abortion.

Developed countries are now getting a taste of the medicine that the IMF has long imposed on

others. Developed countries have given up their ability to control the supply of credit and they have

given away their capacity to manage their exchange rates and hence their external balances.169

Entire governments namely, the poor ones suffered similar pressures from the finance

sector. The IMF and others have forced governments to

163 The quote is repeated by countless authors, but no one seems to know the source. He apparently also stated, A

business that makes nothing but money is a poor business.

164 R. LUCAS, "Why Doesn't Capital Flow from Rich to Poor Countries". American Economic Review. Vol 80, No. 2

(May, 1990): 9296. http://www.jstor.org/pss/2006549. Accessed February 12, 2012.165 S. DULLIEN, Central Banking, Financial Institutions and Credit Creation in Developing Countries, United Nations

Conference on Trade and Development, Discussion Papers. No. 193, January, 2009.

http://www.unctad.org/en/docs/osgdp20091_en.pdf. Accessed February 12, 2012.


167 'Neoliberal' is a difficult term, used for both Adam Smith and some economists today. Some liberals today do not

want to be referred to as 'neo-liberal'.

168 Op.cit., page 16.169 Ibid, page 46.


48/59

PAGE 48

re-orient their economies towards foreign creditors, and expand revenue-generatingexports to raise money for debt repayments. So the pressure has been on to expandexports, which generate hard currency; domestic priorities such as feeding its people andtrying to keep them healthy have had to go by the board in many developing

countries.

170

This also often means the stripping of forests, and the handing over of natural assets171 (gold,

diamonds, oil). It is the colonial mercantile system all over again, set up to make it easy for those with

power and limited natural resources to exploit those with resources but no power.172 The worst

extreme was Malawi, who was told by the IMF to sell of is excess grain to pay debts. They

unfortunately had a drought the following year, and because they didn't have that grain, about a

thousand peopled starved to death.173

To Summarise how the poor stay poor: Because central banks operate under conditions of

great secrecy, these facts are not widely known to the citizens of poor countries or indeed of rich

countries like Japan, the US's biggest creditor.174

1. Low income countries who show a profit must use that profit to 'build up reserves' ofUS Treasury Bills (give that profit to the US), rather than use that surplus for domesticspending or reduce poverty in their own country.2. Each year low-income countries pay hundreds of billions of dollars in repayment ofinterest and (a little on the) principal on loans to high-income countries.3. Since there are no controls over the movement of capital, international corporationsthat work in those 'developing countries' can move their profits to rich countries in USdollars.4. 'Developing countries' were forced to adopt US-style patent and copyright laws,meaning they pay the same royalties as rich countries.

170 Ibid, page 16.

171 Ibid.


173 Malawi at that point told the IMF to get out, and purchased subsidies for fertiliser so their people could feed

themselves. Johann Hari: It's not just Dominique Strauss-Kahn. The IMF itself should be on trial

http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-its-not-just-dominique-strausskahn-

the-imf-itself-should-be-on-trial-2292270.html Accessed January 21, 2012.174 Op.cit., page 49.


49/59


50/59

PAGE 50

at least sustain the country. But, people usually go for the cheap, simple or easy solution. Until the

banks stop lending.

Now, the world is in the midst of an economic crisis that responsible governments should have

seen coming and should have implimented ways to invert. Michael Camdessus recognises that

economic crisis strikes first and foremost at the poorest among us. Then, why didn't he see the present

economic crisis coming?

Ann Pettifor, Fellow, New Economics Foundation179 states:

We did see it coming, a small group of us the thing that really bugged me was that

the IMF had gotten things wrong, all the way down the line. They had failed to predictthe Mexican debt crisis, they cheered on investors buying tesobonos in Mexico beforethat crisis, and the IMF failed totally to predict those crisis in September, 2003,absolutely no one was interesting in hearing about a coming first world debt crisis. By 2006, I began to panic, actually. Why no one saw it coming was because we rely onthe economists who've got it wrong, systematically. Not just this time, but throughoutthe '70s and the '80s and the '90s.180Elected democratic governments have been weakened, and lack the powers, resources and

institutions to protect their citizens and firms and to compensate citizens when shocks occur the

failure of government to afford protection to citizens is leading to disillusionment with spineless

parliaments; and with leaders that have given away to invisible 'markets' key powers to allocate

resources for health, public sanitation, transport etc.181


179 The New Economics Foundation is a thinktank dedicated to economic well-being for people and the planet.

180 A. PETTIFOR, The IMF Has A History of Getting it Wrong - Accessed February 14, 2012:

http://www.guardian.co.uk/commentisfree/video/2009/feb/27/ann-pettifor-capitalism-crisis?fb=nativeA full transcription is available at http://www.guardian.co.uk/commentisfree/2009/feb/26/recession-economy-capitalism

To be fair, there were others who also saw it coming:

... The special privileges granted to Fannie [Mae Federal National Mortgage Assoc.] and Freddie [Mac Federal

Home Loan Mortgage Corp.] have distorted the housing market by allowing them to attract capital [money] they couldnot attract under pure market conditions [giving loans only to those who could afford to pay them back] like all

artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will

experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss.

These losses will be greater than they would have otherwise been had government policy not actively encouraged over-

investment in housing.

Transcribed fromDr. Ron Paul Discusses Austrian vs. Keynesian Economics on Morning Joe recorded 15/05/2009

http://youtu.be/Gf3NxGM5IkU Accessed February 14, 2012.181 A. PETTIFOR, The Coming First World Debt Crisis, page 52.


51/59

PAGE 51

European Relations with Mediterranean Countries

Having seen how the European countries have treated themselves as well as their neighbors over

the past few centuries,182 it will come as little surprise that in my opinion, any type of union with them

spells suicide.

The Mediterranean countries, in spite of their faults, have some advantages that could protect

them from financial totalitarianism. For example, some brag about their strong religious beliefs -

History demonstrates that faithsoul, a belief in higher powersis essential. We Muslims have it.

We have it more than anyone else in the world, even more than the Christians. So we wait. We grow

strong.183 The major religions, with the exception of Islam, have on the whole acquiesced, focusing

mainly on matters of private morality. Islam itself is under pressure from the finance sector to dilute

the condemnation of usury ...184

The current situation in Greece should stand as a very loud warning to all the other

Mediterranean (and Middle Eastern) countries: Today, they are being used as a scapegoat. Instead of

accepting that it is the broken banking system; the de-regulated financial Eurozone, and the

deflationary monetarist policies of the Maastricht Treaty that are the roots of the crisis,185 the 'Troika'

Here is a quote from Bob Traa, doing exactly what Dr. Pettifor is warning:... the public sector is very large and another essential element of a credible fiscal strategy must be to reduce the

public sectors claim on resources: a credible strategy must primarily focus on sustainable expenditure cuts. This inevitably

will require closure of inefficient state entities as well as reductions in the exceptionally large public sector work force and

in generous public sector wage ...Remarks by Bob Traa, Senior IMF Resident Representative in Athens, Greece,

http://www.imf.org/external/np/speeches/2011/091911.htm Accessed February 19, 2012.

182 When we read about the terrible attrocities done during the process of colonization, we should also remember the

60-80,000 German civilian massacres during World War II, the 7 to 15 million Christian Russian kulaks of 1924-30 who

were starved to death, the Spanish Civil War massacre as well as the more recent wars in the former Yugoslavia.


184 A. PETTIFOR, The Coming First World Debt Crisis, page 121.185 A. PETTIFOR, Greece as Whipping Boy for 'Troika' Bullies,


52/59

PAGE 52

[the IMF/EU/ECB, the three banks that are participating] want to blame Greece and its taxpayers. At

least their problems have certainly alerted all the Mediterranean and Middle Eastern countries of the

dangers of the 'Troika'.

They borrowed the money and they have to pay it back. Seems fair enough, but let us look at

some details.

One loan, from May, 2010 was for110bn. For that, they were expected to pay an additional

131bn in interest and refinancing charges.186 Greece is in its' fifth year of a recession, and the 'Troika'

want Greece to re-capitalise its banks with the loans it may receive in the year 2012. The banks want

the money that Greece borrows to go to banks.

Private sectors (the private banks who have added up the 131bn in interest and other charges)

have offered to write off 50-70% of the debt, which would leave Greece paying 53bn interest on a

110bn loan.187 And, the IMF just increased its membership fee to 1.5 billion for all members.

The loans are made to suite the private banking system; they are not suited for the people of a

particular country, and the austerity measures imposed on them are very similar to the austerity

measures imposed on Germany after World War I. It was these measures that paved the way for

Nazism.

Ann Pettifor believes that if Greece defaulted, they would regain autonomy over their policy

making, they could determine their own economic policy. In 2001, Argentina defaulted from their

loans, and ran their economy to suit their people, not to suit creditors. How well they are doing as a

result, is another matter.

http://www.huffingtonpost.com/ann-pettifor/greek-debt-crisis_b_977733.html Accessed January 7, 2012.

186 C. DOUZINAS, P. PAPACONSTANTINOU, Greece is Standing up to EU Neocolonialism,

http://www.guardian.co.uk/commentisfree/2011/jun/27/greece-bailout-eu-neocolonialism Accessed February 14, 2012.187 The loans initiated at 14% interest, the same as the loans to Portugal. Refinancing charges and other fees actually


53/59

PAGE 53

Conclusions

In spite of its economic and technical superiority, Europe is actually quite poor. As noted

briefly, our educational system in the public realm needs a complete overhaul that would allow more

citizens to be better informed of political and economic currents, and it would create better politicians.

Today, a quality education is cost prohibitive to most creating class differences and preventing the

equal opportunity to educate and improve the citizens. This creates an oligarchy, not a democracy. The

classical definition of 'democracy' is etymologically from demos, 'the people of the country' + arche,

'rule'.

The financial system has to be closely regulated. Interests rates need to drop to a level that

encourages small and medium sized business investment and production. Some have asked why

interest should be paid at all. Banks do have a right to make a profit, but there is a saying among some

Egyptians, make a living; not a killing. Bankers have been making a killing (sometimes literally) for

over 200 years or more. Loans to states or international bodies need to follow certain standards:

Responsibility, impartiality and accountability equally to both parties the lender as well as the

borrower.

Several principles should guide the design of institutional arrangements that can dealjustly with debt. The first is that there should be recognition that it takes two parties tomake a loan, and that each of these two parties can be reckless, irresponsible, anddelinquent in its actions. Insofar as either party to a loan acts in this way, it ought toshoulder part of the burden of the crises that often ensue. Losses from bad loans and baddebts should not, therefore, fall solely on the debtor. The second principle, based on afundamental principle of the rule of law, is that no one ought to be judge in their owncourt. Any courts that are developed to resolve debt crises must be fair and impartialwith respect to the parties to the loans in question. The third principle is the principle ofaccountability. Sovereign debt crises are public, not private, crises involving the use oftaxpayer funds. If the resolution of these crises is to be achieved within a framework of

bring the interest rate up closer to 50%.


54/59

PAGE 54

justice, and if democratic scrutiny of public funds is to be strengthened, then it will bevital for the process to be open, transparent, and accountable to citizens andtaxpayers.188

Government also needs to reorganize themselves so as to better serve the intentions they are

meant to serve. The have become institutions serving their own needs, and they need to revolutionize

and become once again the instruments that create great societies.

Full employment and good wages are vital to social and political stability; they nurture a sense

of stability and well-being in society, and give us the confidenceadn assurance to do more than just

pursue money, profit and consumption.189

The only thing that might possibly save Western society is that its' ontology is such that it

always seeks to understand reality, which is perceived as in constant change.190 We understand that

circumstances change, and we adapt. Since we can understand that reality is subject to change, reform

is always possible.191 Reform is clearly necessary. What we need are courageous reformers

politicians who are willing first to reform themselves, rather than asking the common people to suffer

more sacrifices.

Historiographers have become too specialized today. There is no 'universal history', scholars

typically specialize in a particular theme and region.

188 A. PETTIFOR, Resolving International Debt Crises Fairly,

http://www.carnegiecouncil.org/resources/journal/17_2/roundtable/1023.html Accessed February 14, 2012.


190 C. QUIGLEY,The Evolution of Civilizations, pages 17-18.191 R. PATAI, The Arab Mind, page 273.


55/59

PAGE 55

Appendix I

What is the 'GDP'?

Gross Domestic Product, is supposed to be the total value of all final goods andservices produced within that economy during a specified period. This means financialassets as well as physical capital, human capital, and research and developmentexpenditures. In the late 1970s and early 1980s, the two were roughly the same. By2000, financial assets were worth about three times the value of real assets underlyingthem. There was a total divorce from economic reality.192

But, financial assets don't represent anything real, and don't aways have physicalworth. Some derive value simply from a contractual claim. Mortages and sub-primemortgages are a good example of financial assets.

So, the GDP is equal to total expenditure and total income. This measures economicperformance across nations. Higher GDP growth is seen as a measure of success.193 It

fails to account for the economic impact on the environment; it counts clean up costs fornatural disasters as 'goods' rather than 'bads' it only measuresflows so a country thatis very much in debt can be seen as the richest county in the world, according to theGDP. 'Savings' are defined as any income that is not consumed. Debt repayments aretherefore defined as savings!194 The total external US debt already stands at more than$2.3 trillion, more than the total foreign debt of all developing countries combined!195

EU members were initially asked to keep their deficits from exceeding 3% of their GDP.196

Most never achieved that goal. Now, they're trying to get it down to 100% of their GDP.

If poor countries can develop and accumulate capital domestically without capital inflows (or

even with net capital outflows), where do they get their capital from? Natural resources, such as metals.

192 A. Pettifor, ed.,Real World Economic Outlook, page 23.

193 Ibid, page 30.

194 Ibid, page 30.

195 Ibid, page 52., according to IMF International Financial Statistics.196 M. SCHUMAN, The Euro's Last Stand?, Time Magazine, December 5, 2011, page 30.


56/59

PAGE 56

Bibliography

Books:

J.S. BERLINER,Economy, Society and Welfare. A Study in Social Economics. NY, Praeger publishers,1972.

D. BROWN,A New Introduction to Islam. Blackwell Publishing, Malden, MA, 2004.

P. CHENAUX,Pio XII. Diplomatico e pastore, Paris: edizioni san paolo, 2004.

C.W. ERNST, Following Mohammad: Rethinking Islam in the Contemporary World, Chapel Hill:University of North Carolina Press, 2003.

M.S. FINDLAY

,Language and Communication: A Cross Cultural Encyclopedia, Santa Barbara: ABC-CLIO, Inc. 1998.

E. HELLEINER, States and the Reemergence of Global Finance. From Bretton Woods to the 1990s,London: Cornell University, 1994.

A. HITLER,Mein Kampf, London, Hurst and Blackett Ltd, English translation, 1939.

I. KANT,Risposta alla domanda: che cos lilluminismo? 5 dicembre 1783. Traduzione dalloriginaletedesco di Francesca Di Donato.

S.J. KIELY,Psychology and Moral Theology. Lines of Convergence. Gregorian University Press, Italy,1987.

M. LIEBERMAN R. HALL, Introduction to Economics, South-Western College Publishing, Mason,Ohio, 2000.

J. LOCKE,Essays on the Law of Nature.

M. NYDELL, Understanding Arabs; A Guide for Modern Times, 4th edition, Boston: Intercultural Press,2006.

R. PATAI, The Arab Mind. Hatherleigh Press, NY, 2002.

J. PERKINS, Confessions of an Economic Hit Man, San Francisco, Berrett-Koehler Publishers, Inc.,2004.

A. PETTIFOR, The Coming First World Debt Crisis, Palgrave MacMillan, NY, 2006.

(ed), Real World Economic Outlook. The Legacy of Globalization: Debt and Deflation.Hampshire: Palgrave Macmillan, 2003.


57/59


58/59

PAGE 58

, Mexican National Character and Circum-Mediterranean Personality Structure. AmericanAnthropologist, 75: 319-322.http://www.carrollquigley.net/Articles/Mexican-National-Character-Circum-Mediterranean-

Personality-Structure.htm

, Needed: A Revolution in Thinking, Today's Education. March-April, 1975. Originallypublished in the National Education Association Journal 57 (May 1968), pp. 8-10.http://www.carrollquigley.net/Articles/Needed-A-Revolution-in-Thinking.htm

, Obsolete Academic Disciplines, The HOYA (1967 or 1968).http://www.carrollquigley.net/Articles/Obsolete-Academic-Disciplines.htm

Accessed October 30, 2011.

, Lecture, "Public Authority and the State in the Western Tradition: A Thousand Years ofGrowth, A.D. 976 1976, Georgetown University, 1978.

http://www.carrollquigley.net/Lectures/The-State-of-Communities-AD-976-1576.htm

,Politics. SFS yearbook Protocol, 1957. http://www.carrollquigley.net/Articles/Politics.htm

B. O'NEILL, RIP Democracy Says Brendan ONeill http://www.incise.org.au/2012-02-03/rip-democracy/

Dr. Ron PaulDiscusses Austrian vs. Keynesian Economics on Morning Joe recorded 15/05/2009http://youtu.be/Gf3NxGM5IkU

A. PETTIFOR, Resolving International Debt Crises Fairly,http://www.carnegiecouncil.org/resources/journal/17_2/roundtable/1023.html

, Cross Talk with Peter Lavelle. Recorded December 6, 2011.http://www.youtube.com/watch?v=UhByd7zSYzc

, Greece as Whipping Boy for 'Troika' Bullies, http://www.huffingtonpost.com/ann-pettifor/greek-debt-crisis_b_977733.html Accessed January 7, 2012.

, The IMF Has A History of Getting it Wrong,http://www.guardian.co.uk/commentisfree/video/2009/feb/27/ann-pettifor-capitalism-crisis?fb=nativeA complete transcription is available athttp://www.guardian.co.uk/commentisfree/2009/feb/26/recession-economy-capitalism

Special Report: The Emu Criteria,http://news.bbc.co.uk/2/hi/special_r

Documents

PROGRESS OR DECLINE? THE PLIGHT OF WESTERN ECONOMIES WITH SPECIAL REFERENCE TO THE EU AND THE MEDITERRANEAN