Prediction: Things May Unravel Faster Than You Think...

Chris Martenson PhD

Part l
By my analysis, we are not yet on the final path to recovery, and there are one or more financial 'breaks' coming in the future.  Underlying structural weaknesses have not been resolved, and the kick-the-can-down-the-road plan is going to encounter a hard wall in the not-too-distant future.  When the next moment of discontinuity finally arrives, events will unfold much more rapidly than most people expect.  
My work centers on figuring out which macro trends are in play and then helping people to adjust accordingly.  Based on trends in fiscal and monetary policy, I began advising accumulation of gold and silver in 2003 and 2004.  I shorted homebuilder stocks beginning in 2006 and ending in 2008.  These were not 'great' calls; they were simply spotting trends in play, one beginning and one certain to end, and then taking appropriate actions based on those trends. 
We happen to live in a non-linear world; a core concept of the Crash Course.  But far too many people expect events to unfold in a more or less orderly manner, with plenty of time to adjust along the way.  In other words, linearly.  The world does not always cooperate, and my concern rests on the observation that we still face the convergence of multiple trends, each of which alone has the power to permanently transform our economic landscape and standards of living. 
Three such trends (out of the many I track) that will shape our immediate future are:

• Peak Oil
• Sovereign insolvency
• Currency debasement

Individually, these worry me quite a bit; collectively, they have my full attention.
History suggests that instead of a nice smooth line heading either up or down, markets have a pronounced habit of jolting rather suddenly into a new orbit, either higher or lower.  Social moods are steady for long periods, and then they shift.  This is what we should train ourselves to expect. 
No smooth lines between points A and B; instead, long periods of quiet, followed by short bursts of reformation and volatility.  Periods of market equilibrium, followed by Minsky moments.  In the language of the evolutionary biologist Stephen Jay Gould, we live in a system governed by the rules of "punctuated equilibrium."

Complex Systems

Our economy is a complex system.  The key feature of such systems is that they are inherently unpredictable with respect to the timing and severity of specific events.  For the uninitiated, they can look enormously fragile and prone to flying apart at any minute; for the seasoned observer, there is an appreciation that the immense inertia of the economic system will almost always delay and dampen the eventual adjustments. 
Like everybody else, I have no idea exactly what's going to happen, or precisely when.  Anybody who says they do know should be greeted with a furrowed brow and a frown of suspicion.  As my long-time readers know, I prefer to assess the risks and then take steps to mitigate those risks based on likelihood and impact.
Which means that although we cannot predict the size (exactly how much) or the timing (precisely when) of economic shifts or world-changing events, we can certainly understand the risks and the dimensions of what might happen.  Just as we cannot predict when an avalanche will release from steep slope, or even where or how big it will be, we can readily predict that constant snowfall coupled with the right temperature conditions will lead to an avalanche sooner or later, and more likely in this gully than that one.  Given certain conditions, we might expect one that is larger or smaller than normal.  Although we don't know exactly when or how much, we do know that when snow accumulates, so do the risks of more frequent and/or larger avalanches.
Such is the nature of complex systems.  While inherently unpredictable, they can still be described.  The most important description of any complex system is that it owes its order and complexity to the constant flow of energy through it.  Complex systems require inputs.  This is one way in which we can understand them. 
Given this view, one easy "prediction" is that an economy without increasing energy flows running through it will stagnate.  To take this further, an economy that is being starved of energy becomes simpler in the process - meaning fewer jobs, less items produced, and a reduced capacity to support extraneous functions.

Accepting "What Is"

The most important part of this story is getting our minds to accept reality without our passionate beliefs interfering.  By 'beliefs' I mean statements like these:

• "Things always get better and are never as bad as they seem."
• "If Peak Oil were 'real,' I would be hearing about it from my trusted sources."
• "Dwelling on the negative is self-fulfilling."

While each of these things might be true, they also might be false and therefore misleading, especially during periods of transition.  Our job is to remain as dispassionate and logical as possible.  
Let's now examine more closely the three main events that are converging - Peak Oil, sovereign insolvency, and currency debasement - using as much logic as we can muster.

Peak Oil

Peak Oil is now a matter of open inquiry and debate at the highest levels of industry and government.  Recent reports by Lloyd's of London, the US Department of Defense, the UK industry taskforce on Peak Oil, Honda, and the German military are evidence of this.  But when I say "debate," I am not referring to disagreement over whether or not Peak Oil is real, only when it will finally arrive.  The emerging consensus is that oil demand will outstrip supplies "soon," within the next five years and maybe as soon as two.  So the correct questions are no longer, "Is Peak Oil real?" and "Are governments aware?" but instead, "When will demand outstrip supply?" and "What implications does this have for me?" 
It doesn't really matter when the actual peak arrives; we can leave that to the ivory-tower types and those with a bent for analytical precision.  What matters is when we hit "peak exports."  My expectation is that once it becomes fashionable among nation-states to finally admit that Peak Oil is real and here to stay, one or more exporters will withhold some or all of their product "for future generations" or some other rationale (such as, "get a higher price"), which will rather suddenly create a price spiral the likes of which we have not yet seen. 
What matters is an equal mixture of actual oil availability and market perception.  As soon as the scarcity meme gets going, things will change very rapidly.
In short, it is time to accept that Peak Oil is real - and plan accordingly.

Sovereign Insolvency

Once we accept the imminent arrival of Peak Oil, then the issue of sovereign insolvency jumps into the limelight.  Why?  Because the hopes and dreams of the architects of the financial rescue entirely rest upon the assumption that economic growth will resume.  Without additional supplies of oil, such growth will not be possible; in fact, we'll be doing really, really well if we can prevent the economy from backsliding.
Virtually every single OECD country, due to outlandish pension and entitlement programs, has total debt and liability loads that Arnaud Mares (of Morgan Stanley) pointed out have resulted in a negative net worth for the governments of Germany, France, Portugal, the US, the UK, Spain, Ireland, and Greece.  And not by just a little bit, but exceptionally so, ranging from more than 450% of GDP in the case of Germany on the 'low' end to well over 1,500% of GDP for Greece. 
Such shortfalls cannot possibly be funded out of anything other than a very, very bright economic future.  Something on the order of Industrial Age 2.0, fueled by some amazing new source of wealth.  Logically, how likely is that?  Even if we could magically remove the overhang of debt, what new technologies are on the horizon that could offer the prospect of a brand new economic revival of this magnitude?  None that I am aware of.
In the US, the largest capital market and borrower, even the most optimistic budget estimates foresee another decade of crushing deficits that will grow the official deficit by some $9 trillion and the real (i.e., "accrual" or "unofficial") deficit by perhaps another $20 to $30 trillion, once we account for growth in liabilities.  This is, without question, an unsustainable trend.
It's time to admit the obvious:  Debts of these sorts cannot be serviced, now or in the future.  Expanding them further with fingers firmly crossed in hopes of an enormous economic boom that will bail out the system is a fool's game.  It is little different than doubling down after receiving a bad hand in poker. 
The unpleasant implication of various governments going deeper into debt is that a string of sovereign defaults lies in the future.  Due to their interconnected borrowings and lendings, one may topple the next like dominoes. 
However, it is when we consider the impact of the widespread realization of Peak Oil on the story of growth that the whole idea of sovereign insolvency really assumes a much higher level of probability.  More on that later.
For now we should accept that there's almost no chance of growing out from under these mountains of debts and other obligations.  We must move our attention to the shape, timing, and the severity of the aftermath of the economic wreckage that will result from a series of sovereign defaults. 

Currency Wars

We could trot out a lot of charts here, examine much of history, and make a very solid case that once a country breaches the 300% debt/liability to GDP ratio, there's no recovery, only a future containing some form of default (printing or outright).
In a recent post to my enrolled members, I wrote:

The currency wars have begun, and the implications to world stability and wealth could not be more profound. Fortunately, all of my long-time enrolled members are prepared for this outcome, which we've been predicting here for some time.

When pressed, the most predictable decision in all of history is to print, print, print.  So I can't take credit for a 'prediction' that was just slightly bolder than 'predicting' which way a dropped anvil will travel; down or up?

The only problem is, widespread currency debasements will further destabilize an already rickety global financial system where tens of trillions of fiat dollars flow daily on the currency exchanges.

You can be nearly certain that every single country is seeking a path to a weaker relative currency. The problem is obvious: Everybody cannot simultaneously have a weaker currency. Nor can everybody have a positive trade balance.
If a country or government cannot grow its way out from under its obligations, then printing (a.k.a. currency debasement) takes on additional allure.  It is the "easy way out" and has lots of political support in the home country.  Besides the fact that it has already started, we should consider a global program of currency debasement to be a guaranteed feature of our economic future. 

Conclusion (to Part I)

Three unsustainable trends or events have been identified here.  They are not independent, but they are interlocked to a very high degree.  At present I can find no support for the idea that the economy can expand like it has in the past without increasing energy flows, especially oil.  All of the indications point to Peak Oil, or at least "peak exports," happening within five years. 
At that point, it will become widely recognized that most sovereign debts and liabilities will not be able to be serviced by the miracle of economic growth.  Pressures to ease the pain of the resulting financial turmoil and economic stagnation will grow, and currency debasement will prove to be the preferred policy tool of choice. 
Instead of unfolding in a nice, linear, straightforward manner, these colliding events will happen quite rapidly and chaotically.
By mentally accepting that this proposition is not only possible, but probable, we are free to make different choices and take actions that can preserve and protect our wealth and mitigate our risks.
What changes in our actions and investment stances are prudent if we assume that Peak Oil, sovereign insolvency, and currency debasement are 'locks' for the future? 
I explore these questions in greater depth in Part II of this report 
Dr. Chris Martenson is an independent economist and author of a popular website, ChrisMartenson.com. His Crash Course video series explores the intertwining significance of the "three E's" - the economy, energy, and environment and offers articulate, dynamic insight into the workings of our monetary system.
Chris earned a PhD in neurotoxicology from Duke University, and an MBA from Cornell University. A fellow of the Post Carbon Institute, Chris's work has appeared on PBS and been cited by the Washington Post. He is a contributor to SeekingAlpha.com.
Chris is an accomplished presenter who has offered the Crash Course seminar all over the United States. The online course has been translated into several languages, and been viewed over 1.5 million times. His website offers both daily free content as well as a newsletter service for enrolled members. His goal is to help as many people understand that we are in the midst of a profound economic shift and that equally profound risks and opportunities lie in our future. For those that can see them coming, tremendous advantages exist.

www.chrismartenson.com

Rampant Inflation In 2011? The Monetary Base Is Exploding, Commodity Prices Are Skyrocketing And The Fed Wants To Print Lots More Money

The Economic Collapse

Are you ready for rampant inflation? Well, unfortunately it looks like it might be headed our way. The U.S. monetary base has absolutely exploded over the last couple of years, and all that money is starting to filter through into the hands of consumers. Commodity prices are absolutely skyrocketing, and it is inevitable that those price increases will show up in our stores at some point soon. The U.S. dollar has already been slipping substantially, and now there is every indication that the Fed is hungry to start printing even more money. All of these things are going to cause a rise in inflation. Not that we aren’t already seeing inflation in many sectors of the economy. Airline fares for the holiday season are up 20 to 30 percent above last year’s rates. Double-digit increases in health insurance premiums are being reported from coast to coast. The price of food has been quietly sneaking up even at places like Wal-Mart. Meanwhile the U.S. government insists that the rate of inflation is close to zero. Anyone who actually believes the government inflation numbers is living in a fantasy world. The U.S. government has been openly manipulating official inflation numbers for several decades now. But we really haven’t seen anything yet. As increasingly larger amounts of paper money are dumped into the economy, we are eventually going to see the worst inflation in American history. The only real question is how far down the road are we going to get before it happens.
Take a few moments and digest the chart below. It shows just how dramatically the U.S. monetary base has been expanded recently....

Up to this point this dramatic expansion of the U.S. monetary base has not caused that much inflation because U.S. government borrowing has soaked most of it up and U.S. banks have been hoarding cash and have been building up their reserves.
However, this situation will not last forever. Eventually all this cash will make its way through the food chain and into the hands of U.S. consumers.
But what is even more troubling is the dramatic spike in commodity prices that we have seen in 2010.
Wheat futures have surged 63 percent since the month of June. Wheat has recently been selling well above 7 dollars a bushel on the Chicago Board of Trade.
But wheat is far from alone. In his recent column entitled "An Inflationary Cocktail In The Making", Richard Benson listed many of the other commodities that have seen extraordinary price increases over the past year....

*Agricultural Raw Materials: 24%
*Industrial Inputs Index: 25%
*Metals Price Index: 26%
*Coffee: 45%
*Barley: 32%
*Oranges: 35%
*Beef: 23%
*Pork: 68%
*Salmon: 30%
*Sugar: 24%
*Wool: 20%
*Cotton: 40%
*Palm Oil: 26%
*Hides: 25%
*Rubber: 62%
*Iron Ore: 103%

Now, as those price increases enter the chain of production do you think that there is any chance that they will not cause inflation?
Do you think there is any chance at all that producers and retailers will not pass those costs on to consumers?
It is time to face facts.
Those cost increases are going to filter all the way through the system and your paycheck is soon not going to stretch nearly as far.
Inflation is coming.
Many savvy investors understand what is going on right now. That is one reason why gold and silver are absolutely soaring at the moment.
The price of gold set another record high on Friday for the sixth straight day.
Silver has also experienced extraordinary gains recently, and the U.S. Mint has officially raised their wholesale pricing above spot on American Silver Eagles from $1.50 to $2.00.
Meanwhile, there are even more rumblings that the Fed wants to print lots more money. On Friday, the president of the Federal Reserve Bank of New York, William Dudley, stated that the high unemployment and the low inflation that the United States is experiencing right now are "wholly unacceptable"....

"Further action is likely to be warranted unless the economic outlook evolves in such a way that makes me more confident that we will see better outcomes for both employment and inflation before long."

During his remarks, Dudley even mentioned what the effect of another $500 billion increase in the Fed’s balance sheet would be.
Now keep in mind, this is not just another "Joe" who is making these remarks.
This is the president of the Federal Reserve Bank of New York – the most important of all the regional Fed banks.
In recent weeks it is almost as if you can hear Fed officials salivate as they consider the prospect of flooding the economy with even more money.
Up to this point, very little has worked to stimulate the dying U.S. economy. The Federal Reserve and the Obama administration are getting nervous as the American people become increasingly frustrated about the economic situation.
So will flooding the economy with even more money and causing even more inflation do the trick?
Well, no, but what inflated GDP figures will do is enable Obama and the Fed to say: "Look the economy is growing again!"
But if a flood of paper money causes the value of goods and services produced in the U.S. to go up by 5 percent but the real inflation rate is 10 percent, are we better off or are we worse off?
It doesn’t take a genius to figure that one out.
So don’t get fooled by "economic growth" numbers. Just because more money is changing hands doesn’t mean that the U.S. economy is doing better.
In fact, many American families are going to be financially shredded by the coming inflation tsunami.
Just think about it.
How far will your paycheck go when a half gallon of milk is 10 dollars and a loaf of bread is 5 dollars?
Already, it is incredibly difficult for the average American family of four to get by on $50,000 a year.
So how much money will we need when rampant inflation starts kicking in?
And do you think that your employers will actually give you pay raises to keep up with all of this inflation?
Not in these economic conditions.
In fact, median household incomes are declining from coast to coast all over the United States.
Earlier this year, Ben Bernanke promised Congress that the Federal Reserve would not "print money" to help the U.S. Congress finance the exploding U.S. national debt.
Did any of you believe him at the time?
Did any of you actually believe that the Federal Reserve would act responsibly and would attempt to keep the money supply and inflation under control?
The reality is that the entire Federal Reserve system is predicated on perpetual inflation and a perpetually expanding national debt.
Whatever wealth you and your family have been able to scrape together is going to continue to be whittled away month after month after month by the hidden tax of inflation.
And unfortunately, as discussed above, inflation is about to get a whole lot worse.
So is there any room for optimism? Is there any hope that we will not see horrible inflation in the years ahead? Please feel free to leave a comment with your opinion below....

theeconomiccollapseblog.com

Shocking: How Your Political System Works *Video*

Mac Slavo

D.C. lobbyist Jimmy Williams joins Dylan Ratigan to discuss what most of us already know - the political system is flawed and the current model of how our Congressional Representatives do business must be stopped:

The great news is, is that everybody’s writing a check.
It’s a bad system and it’s got to stop.
You write those checks because that’s the price of playing politics in Washington today…This is a system that has to stop.
Money is so invasive in every single thing that we do in this city.

It really is amazing, though not surprising, that our so-called representatives, once they arrive in Washington, throw ethics, morals and even the fundamental principles of this nation out the window just to make a buck.
There can be absolutely no postive and constructive change in this country until:

1. We throw all incumbents out of Congress and reset the Legislature. This can be accomplished by either a) voting them all out district by district, or b) forcing bills through Congress that will enact #2 below.
2. Enact term limits on all federally elected representatives and appointed federal judges. While this may not be a perfect solution, it offers some level of insurance that no single individual will be in Congress (or the courts) long enough to adversely impact this country in the long-term. With the current system as it is, we end up with lifetime politicians, rather than representatives of the people, most of whom spend decades in their positions.
3. Ethics violations are dealt with swiftly and severely. If you are arrested as a citizen for a criminal act from possession of marijuana or drunk driving to assault on another person, you’re crime is prosecuted in an open court, with all evidence being made publicly available. If you are guilty as charged, you pay the fines, go to prison, do the probation or serve whatever penalty the judge declares. The same should hold true for Congress. Since these are our law makers, they should, at the very least, be held to the same standards as the plebes that elect them.

The current system is setup so that only deep pocketed individuals or corporations can make changes happen, and generally, those changes are to the detriment of the people. Money makes the system go ’round, which obviously leads to corruption and a culture of favoritism. Unless this is eliminated, we can expect that no meaningful change will happen in America until the entire system comes crumbling down.
It is important that individuals like Mr. Jimmy Williams discuss their lobbying experiences on news outlets, and we commend him for his efforts. But the only real solution to these problems are the ones that will leave Mr. Williams and those in similar lines of work unemployed.
Watch the video:

www.SHTFplan.com

"A Financial Coup d'Etat"

European Neoliberals Raise Ante in War on Labor; Fateful Struggle Will Set Course for a Generation

By MICHAEL HUDSON

Most of the press has described Europe’s labor demonstrations and strikes on Wednesday in terms of the familiar exercise by transport employees irritating travelers with work slowdowns, and large throngs letting off steam by setting fires. But the story goes much deeper than merely a reaction against unemployment and economic recession. At issue are proposals to drastically change the laws and structure of how European society will function for the next generation. If the anti-labor forces succeed, they will break up Europe, destroy the internal market, and render that continent a backwater. This is how serious the financial coup d’etat has become. And it is going to get much worse – quickly. As John Monks, head of the European Trade Union Confederation, put it: “This is the start of the fight, not the end.”

Spain has received most of the attention, thanks to its ten-million strong turnout – reportedly half the entire labor force. Holding its first general strike since 2002, Spanish labor protested against its socialist government using the bank crisis (stemming from bad real estate loans and negative mortgage equity, not high labor costs) as an opportunity to change the laws to enable companies and government bodies to fire workers at will, and to scale back their pensions and public social spending in order to pay the banks more. Portugal is doing the same, and it looks like Ireland will follow suit – all this in the countries whose banks have been the most irresponsible lenders. The bankers are demanding that they rebuild their loan reserves at labor’s expense, just as in President Obama’s program here in the United States but without the sanctimonious pretenses.

The problem is Europe-wide and indeed centered in the European Union capital in Brussels, where fifty to a hundred thousand workers gathered to protest the proposed transformation of social rules. Yet on the same day, the European Commission (EC) outlined a full-fledged war against labor. It is the most anti-labor campaign since the 1930s – even more extreme than the Third World austerity plans imposed by the IMF and World Bank in times past.

The EC is using the mortgage banking crisis – and the needless prohibition against central banks monetizing public budget deficits – as an opportunity to fine governments and even drive them bankrupt if they do not agree roll back salaries. Governments are told to borrow at interest from the banks, rather than raising revenue by taxing them as they did for half a century following the end of World War II. Governments unable to raise the money to pay the interest must close down their social programs. And if this shrinks the economy – and hence, government tax revenues – even more, the government must reduce social spending yet further.

From Brussels to Latvia, neoliberal planners have expressed the hope that lower public-sector salaries will spread to the private sector. The aim is to roll back wage levels by 30 per cent or more, to depression levels, on the pretense that this will “leave more surplus” available to pay in debt service. It will do no such thing, of course. It is a purely vicious attempt to reverse Europe’s Progressive Era social democratic reforms achieved over the past century. Europe is to be turned into a banana republic by taxing labor – not finance, insurance or real estate (FIRE). Governments are to impose heavier employment and sales taxes while cutting back pensions and other public spending.

“Join the fight against labor, or we will destroy you,” the EC is telling governments. This requires dictatorship, and the European Central Bank (ECB) has taken over this power from elected government. Its  “independence” from political control is celebrated as the “hallmark of democracy” by today’s new financial oligarchy. This deceptive newspeak evokes Plato’s view that oligarchy is simply the political stage following democracy. The new power elite’s next step in this eternal political triangle is to make itself hereditary – by abolishing estate taxes, for starters – so as to turn itself into an aristocracy.

It is a very old game indeed. So it is time to put aside the economics of Adam Smith, John Stuart Mill and the Progressive Era, to forget Marx and even Keynes. Europe is ushering in an era of totalitarian neoliberal rule. This is what Wednesday’s strikes and demonstrations were about. Europe’s class war is back in business – with a vengeance!

This is economic suicide, but the EU is demanding that Euro-zone governments keep their budget deficits below 3 per cent of GDP, and their total debt below 60 per cent. On Wednesday the EU passed a law to fine governments up to 0.2 per cent of GDP for not “fixing” their budget deficits by imposing such fiscal austerity. Nations that borrow to engage in countercyclical “Keynesian-style” spending that raises their public debt beyond 60 per cent of GDP will have to reduce the excess by 5per cent each year, or suffer harsh punishment. The European Commission (EC) will fine euro-area states that do not obey its neoliberal recommendations – ostensibly to “correct” budget imbalances.

The reality is that every neoliberal “cure” only makes matters worse. But rather than seeing rising wage levels and living standards as being a precondition for higher labor productivity, the EU commission will “monitor” labor costs on the assumption that rising wages impair competitiveness rather than raise it. If euro members cannot depreciate their currencies, then they must fight labor – but not tax real estate, finance or other rentier sectors, not regulate monopolies, and not provide public services that can be privatized at much higher costs. Privatization is not deemed to impair competitiveness – only rising wages, regardless of productivity considerations.

The financial privatization and credit-creation monopoly that governments have relinquished to banks is now set to pay off – at the price of breaking up Europe. Unlike central banks elsewhere in the world, the charter of the European Central Bank (ECB, independent from democratic politics, not from control by its commercial bank members) forbids it to monetize government debt. Governments must borrow from banks, which are create interest-bearing debt on their own keyboards rather than having their national bank do it without cost.

The unelected members of the European Central Bank have taken over planning power from elected governments. Beholden to its financial constituency, the ECB has convinced the EU commission to back the new oligarchic power grab. This destructive policy has been tested above all in the Baltics, using them as guinea pigs to see how far labor can be depressed before it fights back. Latvia gave free rein to neoliberal policies by imposing flat taxes of 51 per cent and higher on labor, while real estate is virtually untaxed. Public-sector wages have been reduced by 30 per cent, prompting labor of working age (20 to 35 year-olds) to emigrate in droves. This of course is contributing to the plunge in real estate prices and tax revenue. Lifespans for men are shortening, disease rates are rising, and the internal market is shrinking, and so is Europe’s population – as it did in the 1930s, when the “population problem” was a plunge in fertility and birth rates (above all in France). That is what happens in a depression.

Iceland’s looting by its bankers came first, but the big news was Greece. When that nation entered its current fiscal crisis as a result of not collecting taxes on the wealthy, European Union officials recommended that it emulate Latvia, which remains the poster child for neoliberal devastation. The basic theory is that inasmuch as members of the euro cannot devalue their currency, they must resort to “internal devaluation”: slashing wages, pensions and social spending. So as Europe enters recession it is following precisely the opposite of Keynesian policy. It is reducing wages, ostensibly to “free” more income available to pay the enormous debts that Europeans have taken on to buy their homes and pay for schooling (hitherto provided freely in many countries such as Latvia’s Stockholm School of Economics), transportation and other public services. Manly such services have been privatized and subsequently raised their rates drastically. The privatizers justify this by pointing to the enormously bloated financial fees they had to pay their bankers and underwriters in order to get the credit to buy the infrastructure that was being sold off by governments.

So Europe is committing economic, demographic and fiscal suicide. Trying to “solve” the problem neoliberal style only makes things worse. Latvia’s public-sector workers, for example, have seen their wages cut by 30 per cent over the past year, and its central bankers have told me that they are seeking further cuts, in the hope that this will lower wages in the private sector as well, just as neoliberals in other European countries hope, as noted above.

About 10,000 Latvians attended protest meetings in the small town of Daugavilpils alone as part of the “Journey into the Crisis.” In Latvia’s capital city, Riga, Wednesday’s Action Day saw the usual stoppage of transportation and an accompanying honk concert for 10 minutes at 1 PM to let the public know that something was happening. Six independent trade unions and the Harmony Center organized a protest meeting in Riga’s Esplanade Park that drew 700 to 800 demonstrators, relatively large for so small a city. Another union protest saw about half that number gather at the Cabinet of Ministers where Latvia’s austerity program has been planned and carried out.

What is happening most importantly is the national parliamentary elections this Saturday (October 2). The leading coalition, Harmony Center, is pledged to enact an alternative tax and economic policy to the neoliberal policies that have reduced labor’s wages and workplace standards so sharply over the past decade. A few days earlier a bus tour drove journalists to the most visible victims – schools and hospitals that had been closed down, government buildings whose employees had seen their salaries slashed and the workforce downsized. 

These demonstrations seem to have gained voter sympathy for the more militant unions, headed by the hundred individual unions belonging to the Independent Trade Union Association. The other union group – the Free Trade Unions (LBAS) lost face by acquiescing in June 2009 to the government’s proposed 10per cent pension cuts (and indeed, 70per cent for working pensioners). Latvia’s constitutional court was sufficiently independent to overrule these drastic cuts last December. And if the government does indeed change this Saturday, the conflict between the Neoliberal Revolution and the past few centuries of classical progressive reform will be made clear.

In sum, the Neoliberal Revolution seeks to achieve in Europe what the United States has achieved since real wages stopped rising in 1979: doubling the share of wealth enjoyed by the richest 1 per cent. This involves reducing the middle class to poverty, breaking union power, and destroying the internal market as a precondition.

Latvia’s Harmony Center program shows that there is a much easier way to cut the cost of labor in half than by reducing its wages: Simply shift the tax burden off labor onto real estate and monopolies (especially privatized infrastructure). This will leave less of the economic surplus to be capitalized into bank loans, lowering the price of housing accordingly (the major factor in labor’s cost of living), as well as the price of public services. (Owners of monopoly utility services would be prevented from factoring interest charges into their cost of doing business. The idea is to encourage them to take returns on equity. Whether or not they borrow is a business decision of theirs, not one that governments should subsidize.) The tax deductibility of interest will be repealed – there is nothing intrinsically “market dictated” by this fiscal subsidy for debt leveraging. This program may be reviewed at rtfl.lv, the Renew Task Force Latvia website.

No doubt many post-Soviet economies will find themselves obliged to withdraw from the euro area rather than see a flight of labor and capital. They remain the most extreme example of the Neoliberal Experiment to see how far a population can have its living standards slashed before it rebels.

But so far the neoliberals are fully in control of the bureaucracy, and they are reviving Margaret Thatcher’s slogan, TINA: There Is No Alternative. But there is an alternative, of course. In the small Baltic economies, pro-labor parties are pressing for the government to shift the tax burden off employees and consumers back onto property and financial wealth. Bad debts beyond the reasonable ability to pay must be scaled back. It may be necessary to let the banks go under (they are mainly Swedish), even if this means withdrawing from the Euro. The choice is between who will be destroyed: the banks, or labor?

European politicians now view this as being truly a fight to the death. This is the ideology that has replaced social democracy.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com