To avoid inflation, restrictions could be put on the amount of credit creation left to the chartered banks. This could be done not by raising interest rates, but by bringing back reserves. If inflation really threatened, the remedy would be raising the reserve requirement of the banks.
The multiple precedents in our recent history for yet another massive bank bailout ahead, far from making a case for such a step, undermine it. For it means thrusting upon the most vulnerable sections of the population at home and abroad the cost of making our profligate banks whole again. Not once but repeatedly. And already the costs of earlier applications of this policy are pulling nations apart. The doleful note that dominated the celebration of the tenth anniversary of the fall of the Berlin Wall, the ever more frequent outbreaks of genocide, high finance that is hard to distinguish from gangsterism, are symptoms of something deeper—the collapse of the paradigm that took over after the Cold War.
Elsewhere in this issue we carry several articles tracking down the roots of the great malaise in economic theory. But the most disturbing summary is coming in from the rethinking of military strategy underway in the Pentagon. The Wall Street Journal (12/11) carries a front-page article by Thomas E. Ricks that deals with the chilling subject. Here is the view of Retired Marine General Charles Krulak, 'The days of armed conflict between nation-states are ending.' He argues that the military must prepare itself to police democracy's empire, fighting small skirmishes or solving humanitarian crises wherever they pop up. ...To move seamlessly from one of these tasks to the next, the military would be light and generally low-tech, with more emphasis on simple boots-on-the ground infantry than on snazzy new weapons and remote-control battlefields. ...The Navy would support the missions mainly with cruise missiles and ground-attack aircraft. The Air Force would play the role the Navy did in the days of the late-19th century 'gunboat diplomacy,' striking from afar with a handful of fighters and bombers to enforce the will of Washington."
"It is easier to get into these 'small war' missions than to get out of them. The Army may end up spending a full decade in Bosnia—ten times the initial estimate offered by President Clinton on national television. Eventually, predicts Boston University's Andrew Bacevich, an army colonel and expert on international relations, 'Americans will awake in an unruly world in which the US has assumed vast burdens not easily shed.'"
This is a bird's eye view of a society that is falling apart, from having been hollowed out from within.
Before we accept the refashioning of the world as a military guardhouse of the American armed forces redesigned for the purpose, we must re-examine the economic paradigm that is leading us to such a fate.
1 The stock brokerage houses controlled by these same banks will sell out their clients' portfolio if their market value drops below 200% of their loan to the client. In this calculation stocks with a market value of less than $3.00 at the previous day's market closing are not even considered.
2 See Economic Reform 07/99 and Fomcalert 18/05/99. As we go to press, The Wall Street Journal 19/11 carries the Shanghai report that shows that a similar arrangement has already been sold to the Chinese central bank by the international monetary organisations. We will deal with that in our next issue.
3 Kathryn May quotes the Auditor General to this effect (National Post 20/7).
—from Economic Reform, December 1999