The debt crisis – its cause is redistribution and its consequence debt servitude | by Professor Eberhard Hamer

by Jun 18, 2012All Articles

a-world-drowning-in-debtThe indebtedness of America and most European countries is not only dynamite to the international monetary system, but also to the cohesion of Europe and even to the cohesion of individual nation states.  The large public debt crisis directly threatens our currency, our savings, our prosperity, our economic structure, our businesses, our jobs and our livelihood.
For three years, debt problems have shown in various countries with differing intensity and they have been worrying politics, economy, central banks and academia – so far without a common strategy, a way out or even a solution.
  • Why are mainly the world’s democracies most heavily indebted, at least more than the dictatorships?
  • Where does the unimaginable funding come from, which made the world’s countries run into debts?
  • And why has nobody put a timely halt to decades of additional debts?
  • Why have 40 years of accumulating excessive debts only become a world problem in the last few years and not earlier?
  • Why do some countries not solve their debt problem in the classical manner by declaration of state bankruptcy and a solid restart?
  • And why do financial markets and the rating agencies not focus on the absolutely largest national debt in the US but on smaller individual debts of European countries?
To all these questions there must be a joint explanation, because in the big game of the world financial industry nothing happens by chance, nothing without a purpose. But the international financial crisis and its underlying indebtedness already suggest that there must be a link, and that cause and effect of the financial crisis could be controlled, or that mighty financial forces might possibly be the wirepullers behind this crisis.
Why have almost all democracies got into debt?
While the feudal states of the 19th century did above all intend to establish security, order and justice, the democracies of the 20th century are characterized by aiming at freedom and equality before the law. People should therefore be enabled to determine their political leaders by means of universal suffrage, i.e. vote them in or out of office. The political elite therefore had to fight for voter majorities.
The times of political competition with political ideas however are long gone. They have been replaced by a competition of political parties with ever greater offers to the voters, promising them more state services and greater benefits. Anyone who promises most in election campaigns has the greatest chance of being elected. That is why the political competition does no longer enhance the democratic state in the sense of shared ideas, but by increasing public services to growing population (voters) circles.
In this view socialism, which was more or less predominant in all 20th century democracies, developed a demand for “social equality” out of the equality before the law and the equality of chances. Allegedly all people were not only equal, but also consubstantial and therefore entitled to equal claims to equal opportunities and equal welfare. The purpose of the welfare state is therefore to serve “social justice”, while it remains controversial
  • whether it is socially just, if everyone can enjoy the yield of his increased performance by himself (liberalism)
  • or whether the “higher earners” may be deprived of more and more income to distribute it to others, at least if necessary (bourgeois parties)
  • or whether basically all should be offered equal pay and equal conditions by redistribution (socialism).
The democracies of the 20th century have degenerated into redistribution states
Redistribution has therefore not only become the main campaigning issue for the political parties in the welfare state of the 20th century, but also the dominating purpose of the state and the essential government activity. Since redistribution means that in order to give something to the one party we have to take something from the other party and the latter usually do not give it voluntarily, the state’s power is required to enforce redistribution according to the respective political aspirations by means of coercive and judicial power. The democracies of the 20th century have thus not only become welfare states, but also redistribution states with their new state purpose of social redistribution of income and wealth.
A finely tuned system of more taxation for more income (progressive taxation) has been developed to bleed the better-off increasingly dry and gain money for social policy and redistributive policies. In most welfare states, therefore, the incomes of higher earners and corporate profits are coercively taken away by two thirds in order to redistribute them to the political clientele.
Contrary to their claims the democratic parties do not exercise political power in favor of the citizens, but for their own sake and that of their followers. In this sense, the political benefit of each redistribution means that a party as holder of executive power can seize public taxes and social contributions under public constraint and hence distribute public social services.
Thus, any ruling party can reward its supporters for services rendered, for voting or generally for their political support, but it may also weaken its political opponents by taxing them, and thereby stabilize their political power.
The fact that the respective opposition does not fight such governmental redistribution is related to the fact that they, too, want to leave the door open for the distribution of electoral gifts to themselves and their followers in the event of a change of power in order to secure the advantages of being in power. In case of a change of power the formerly enriched will be disenriched again and the formerly disenriched will be enriched again. It is only the direction of redistribution that varies in a democratic government change – if at all – whereas the redistribution system as such remains unchallenged. All the political elites are interested in it, hoping to come to power or share power at some point by votes.
In this respect the democratic state in the 20th century has deteriorated into bribery helpers (election gifts) of the respective political elites in their struggle for votes and power.
Any redistribution, however, is a one-way street without return for the benefactors. Once granted, social benefits can hardly be withdrawn politically without attracting such ingratitude of the electorate that power will get lost. So there is a continuous increase, especially before elections.
An additionally enhancing effect emerges from the fact that certain benefits must be granted not only to the own political constituencies but to the entire population. Thus, some redistribution measures, sparked by another but inevitably wider benefit, become the starting point of a snowball effect, which extends on ever larger population groups (constituencies) by the time. These social gifts, however, are so common that most people do not consciously appreciate them. More than three-quarters of the German population receive some transfers. A slight majority lives exclusively on them.
Not only is the income redistributed through government redistribution programs, but also the assets. Socialism changed the slogan of the “unjust distribution of wealth” into “social injustice” and demanded a new distribution of income and wealth, based on the needs rather than oriented at one’s own performance. The property tax, established for the purpose of distributing the assets of the industrious to those with “low income”, is therefore still a central requirement of all socialist parties.
Big money is free – the main victims are the middle classes
Main victims of this redistribution of income and wealth are the hard-working middle class. According to official German statistics, only 34.3 million (42%) of the 82 million inhabitants of Germany are “living on their work”. According to official statistics, a minority of 42% of workers must therefore finance a majority of 58%, including their own family members.
Among the workers there are two very different groups:
  1. Those, who live on their market income, such as employers and workers in the private sector.
  2. On the other hand there are those who are indeed employed, but live on the taxes and social contributions of the former as public servants, social officials or people with transfer incomes.
In this sense, 66.1% of the population live on taxes and social security contributions of 33.9% of market performers, assisted by governmental redistribution of transfer incomes. The FDP (Free Democratic Part of Germany = Liberals) has painfully experienced this when they struggled in general for tax cuts and did not realize that now two-thirds of the population – namely the earners of transfer income – have already become interested in higher taxes for the market performers, because only then they could expect higher transfer incomes for themselves (public salaries, pensions, social benefits).
Redistribution in the sense of “establishing social justice” through the welfare state is operated not only by the political parties for matters of electoral corruption and is not only welcomed by a majority of the population, i.e. the recipient of redistribution benefits, but it is pushed forward also in the interest of an ever-growing army of social officials, for which the redistribution has created a “rule through care”. Even Ludwig Erhard has always warned against such “rule through care” and has branded social feudalism – namely, the parasite lives of those who distribute public funds at the expense of those who have to work for them.
Social feudalism ruling over all others
Wherever we look we recognize such social feudalism in Germany, not only in public administrations and the social system:
  • The public broadcasters waste more top salaries than the funding federal states employ permanent secretaries.
  • In the public chambers, water associations, housing associations, building yards etc. the officials have adjusted their salaries to those of private business management salaries, but nevertheless reserved public service law with public security and public pensions for themselves.
  • Every evening a cultural jet set performs theater plays in highly subsidized places which only please the director, but make the audience run away
  • A favorite field of activity for social feudalists is environmental protection. Whoever finds something in the environment that is worth being protected, can secure his ruling power over others with a public feudal position.
  • Each group that is allegedly worth protecting has its own public official: thousands of functionaries for release, women, gays, lesbians, the environment, immigrants and the disabled, etc. are in highly paid public feudal positions without a genuine task.
As in any feudalism, the feudal officials have made their public status unassailable by the fetish word “social”. Those who are not “social” are discriminated by society. For instance, not only the social benefits increase without limit, but also the number and income of the respective social functionaries. They are the priests, the nobles, the exploiters and the main beneficiaries of our sprawling redistribution state.
Costs of redistribution
The drawback of an increasing social feudalism and an ever more unbridled redistribution lies in their costs. Every benefit that the state wants to distribute must be paid by someone. Traditionally in Germany, all social benefits are financed by labor taxes and social security contributions. The stronger the redistribution and the stronger the increase in costs for the army of social functionaries, the greater is the increase in additional labor costs. This is why Germany has the highest labor costs in the world and why it is becoming increasingly difficult to compete with countries such as China, who are much more competitive because they have no such social costs and therefore no additional labor costs and can therefore produce at lower prices but the same performance.
The average gross wage in Germany is around 3,500 € a month. A celibate will only get a net of 55.9% of his wages. Due to the additional costs for the employer such as sick pay, holiday pay, social cost share, etc., the total cost of that worker amount to € 6,000 gross. The net earnings of the employee is thus expressed in one third of its total gross cost or otherwise, two-thirds of what the employees have to gain is absorbed and redistributed by many government tentacles (see Hamer, E., “Mittelstand unter lauter Räubern” [SMEs fallen victim to predators]. 2011, pp. 66 ff.)
Redistribution is not only operated horizontally, the key player is ripped off of the benefit of beneficiaries – and vertically the government distributes on all levels:
  • Traditionally, Germany has socialist states “Länder”, which have been affording the highest administrations and redistribution for decades while at the same time they insist on equalization payments from the more solid states.
  • At the national level “European solidarity” has recently required the largest financial transfer from financially sound countries – particularly Germany – to the bankrupt and corrupt EU member countries: ESM – “European debt machine”.
  • Even the international organizations have classified Germany as the main contributors, for example the UN ( € 530 million), the World Bank ( € 370 million), ESA (€ 557 million), etc. (See Hamer, E., p 91).
Actually, there was once a natural limit for new social benefits that politicians and social functionaries could continually distribute and fulfill new tasks at public expense: The amount of the income of a country. However, since paper money can be printed at random and banks and institutional investors claim that they were able to allocate secure loans to states, the limit of the public revenue has no longer been the limit of public spending. Loans opened up an additional valve for expenditures, which provided the politicians with a convenient way for ever new redistribution and social gifts: public debts.
As long as additional debts could be contracted at all levels of redistribution, the enthusiasm of redistribution has not been slowed down, as you can always distribute more than you earn and the citizens can pay for the time being. So you can live permanently beyond your means hoping that the future will regulate debts some time.
This has led to the highest debt in history on all public levels. However, some governments have always claimed they were making savings. They only choked the amount of new net borrowings, but not at all the additional debt. So the overall debt steadily increased. Sometimes it increased more, sometimes less, but always constantly. The large public debt is therefore the result of the large public redistribution, the addiction to an ever greater distribution. And even the money they hoped to earn in the future.
Through indebtedness into bondage
All indebtedness always requires another party to the lender. In the private sector, a lender would not give more credit than the debtor can pay interest and principal, hence as long as the debtor is creditworthy.
In nation-states, such as the USA, Greece, Portugal, Spain and others, however loans were apparently not distributed according to creditworthiness, but far beyond. Greece, for example, would be able to repay neither its debt of 380 billion over the next 50 years nor the interest. Many other European countries in the world are already also indebted well above their creditworthiness (see ratings). So if the international high finance gave the countries in the world excessive unbearable credits, it must have had its reasons.
The unrestrained public debt began in 1971, after the Federal Reserve Bank (Fed) released by the American president from the gold standard; hence dollars could be printed not only because of the gold reserves, but freely and without restraint. Since then, the money supply in the world has increased by a factor forty in thirty years, tripling again in the last five years, and thus the money supply increase of the US became ever unrestrained. This enabled the owners of the private Federal Reserve – the Goldman Sachs gang – to distribute uncontrollably more and more loans and by the distributing unrestrained credit to more than 200 countries around the world they have created a world rule supported by American bases or occupation forces. Meanwhile, more than 200 countries in the world owe interest and tribute to the US high finance – the lords of the dollar empire. What previous generations had to achieve by military conquest – namely, to subject countries and make them pay tribute – has been achieved by Goldman Sachs through the free creation of money, lending, and the resulting debt bondage. More than 200 countries owe them tribute and repayments. On credit, they built the largest financial empire that was ever created in history.
The redistribution of new gifts to the citizens by making debts was therefore on the part of lenders a deliberate means to drive states and their citizens into debt bondage, to make them pay tribute and be ruled as vassals.
John Perkins was one of the top American agents of the US high finance, who was supposed to force countries into debt bondage. He and his colleagues had to create the conditions by which the countries should be subjected to US high finance. He wrote about “[…] corporatocracy [high finance] running our biggest corporations, our government, and our banks.
Like our counterparts in the Mafia, EHMs provide favours. These take the form of loans to develop infrastructure – electric generating plants, highways, ports, airports or industrial parks. A condition of such loans is that engineering and construction companies from our own country [USA] must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston or San Francisco. Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years.
When this happens, then like the Mafia, we demand our pound of flesh. This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money – and another country is added to our global empire.” (John Perkins, “Confessions of an Economic Hit Man”, p. XVII)
The example of Greece
You can recognize the same pattern in the debt crisis, for example, Greece only joined the EU through fraud by Goldman Sachs, who fed it up to 380 billion euros in loans. In the alleged rescue efforts however no “private equity” from lenders could be found, but the discussion was only about how other not over-indebted countries should be held responsible for the over-indebted Greece. Allegedly out of “European solidarity” to help the local population. Thus in Greece, things did not get better but became worse and worse. Nor did the help remain there, but instead the money went straight on from the bondage countries to the creditor banks of high finance. Practically speaking, the entire bailout was no bailout to help the debtor countries, but was to help the US financial hyenas, which had forced the world into debt bondage. They have the power to drive other not over-indebted governments into violating their constitutions and into joint liability to US finance. The debts were not allowed to disappear; they had to remain intact to preserve the rule by dollar debt bondage. The alleged rescue systems are rated higher and higher, and for this reason also the ECB, contrary to its statutes, must unlawfully buy more and more debts from over-indebted countries (over 700 billion euros), and so the euro interest rates are kept artificially low so that the growing debt remains in an ever-increasing money supply (newly printed money). With the help of rescue systems Germany embarks voluntarily into joint and several liability for insolvent European debtor countries to US high finance. The individual debts of these countries become joint debts, for which Germany as a whole will then be liable. This means that the German parliament’s decisions on the fiscal union and the ESM (“European debt machine”) would be a second enabling act, handing Germany’s financial sovereignty over to a European dictatorship. The first Enabling Act in 1933 created a national dictatorship; the second is creating a European financial dictatorship. And in the background high finance is pulling the strings to create an ever larger and more complete bondage throughout Europe.
Any solution to the financial crisis must maintain the interest bondage
The debt crisis in Europe has been building up for decades. It will now always be cited by the US rating agencies, when the dollar drops, when the US debt, in the world’s consciousness, leads to a loss of confidence in the dollar. For then the US will not receive the necessary annual 400 billion dollars from abroad, which the US needs to remain solvent (it has been in debt for a long time). So if the dollar loses confidence, the euro must lose even more confidence, so that speculators will not flee from the dollar into the euro. So the US high finance needs so the euro crisis to maintain the dollar empire.
At the same time the global financial empire needs to maintain debt bondage, which is the national debt, so that no country can escape paying tribute. Therefore a country must not declare national bankruptcy in order to get rid of the debt to US high finance.
Thus only temporary solutions are taken into account, which do not compromise the existing debt bondage and dollar domination of US high finance:
  1. Allegedly, the debtor countries will achieve long-term financial restructuring by austerity programmes. Therefore, for example, Greece is forced to save. However, in a democracy no government can implement serious austerity programmes without being chased out of office. The electorate tolerates only limited restrictions. So saving will not solve the current indebtedness. So soon the austerity programmes will have to be abandoned.
  2. The EU should solve the debt crisis in Europe on instructions from the US. Behind this is the quest to find indebted countries able to pay for the time being through contributions and guarantees by the countries that are not yet over-indebted. But behind it is also the aim of the global financial empire to drive those countries which are not yet over-indebted into debt bondage, too, by turning guarantees for the individual debts of heavily indebted countries into a total debt of all European countries. It is for this purpose that alleged rescue systems and the ESM have been set up, to socialise the debts, and in particular to drive Germany into over-indebtedness and to make all countries liable for the loans from the US high finance.
These measures only gain time; the problem is not solved, but only increased and intensified.
• The US itself tries to solve the over-indebtedness by a glut of money. The higher the debts grow, the more money is to be released in order “to drown the debts in the money supply”. This is also attempted in Europe through the ECB.
The ESM (“European debt machine”) is nothing but such a money making machine.
And now: Printing presses running at full speed?
The increase of money in Europe is also necessary to prevent the dollar exchange rate falling too much despite this unrestrained proliferation. Money supply increase always means inflation. This leads to progressive and later galloping inflation. Any runaway inflation eventually also leads to currency reform, the loss of monetary value.
What is fascinating for the high finance here is that its relative debt bondage – its power over the states – remains both with galloping inflation and currency reform. The path of money supply increase, inflation and currency reform only destroys the financial assets of the citizens, but maintains the debt dominance of the financial empire.
How would this affect us?
  1. The losers in every currency reform and inflation are all holders of monetary values, all holders of monetary assets.
  2. All transfer beneficiaries and recipients of current child support payments are also affected by inflation.
  3. Many wealthy people thus become poor, especially in terms of their financial assets, while property owners only lose if the state imposes compensation taxes on them (load balancing).
  4. Only a currency reform will end the sham prosperity and opulence, and life based on public benefits, making many nations poorer again.
  5. The nations will then necessarily have to either develop away from a transfer society to a meritocracy, or they will abandon international competition and retire into poverty.
Next aberration: war?
However, there could soon be a completely different way, which often appeared to dictators as a last resort when their backs were to the wall: It is no secret that Israel wants war later this year. The American Secretary of War, Panetta, expects Israel’s attack on Iran “between April and June this year”. However, in his view it depends on how long the Mossad and the insurgents in Syria need to either “pacifiy” or at least destabilize this country so that the threat from Syria on Israel’s northern border is no longer a danger. Only then could Israel move against Iran.
If this war alternative became reality later this year, a third world war would result. The US is obliged by treaty to help Israel, and NATO is no longer a defensive force but an auxiliary of US power would be there financially, with soldiers and equipment. Such a war would blank out the current global financial crisis. In war finances have never played a role, because the attackers were hoping for victory and the spoils. The US has also developed into the leading economic power in the world through major economic crises, wars and war booty. Why should they not try a third time?
However, a war would endanger the Gulf oil supply, and probably double or even triple the price of oil in the world at once with all the ensuing consequences on prices, costs and prosperity.
Whether in an attack on Iran, its allies the Russians, Chinese and Pakistanis would remain idle, seems equally questionable, especially since they are dependent on the Iranian oil.
This military solution to the financial crisis would be the most damaging of all alternatives (Third World War). In contrast, peaceful inflation and currency reform would be the “lesser evil”.
Source: Current Concerns : The international journal for independent thought, ethical standards, moral responsibility,  and for the promotion and respect of public international law, human rights and humanitarian law
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