Dirty money savaging our future

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“A dollar-forty” said the lady at the drive-thru window. “Oh,” I said in a dull tone, “the price went up?” She nodded. As I took my coffee, I noticed the cup. “Evil-genius marketing,” I thought, “timing the price hike with the roll-up-the-rim contest.”

Price hikes are a growing feature of life these days. We’ve noticed our food bills ratcheting up, and gas is now hovering around $1.20 a liter here at home—and almost $4 a gallon across the border. So what’s really driving these increases?

Classical economists define these changes in terms of supply and demand, scarcity and abundance. So we seem to be moving from an era of abundance to one of scarcity here in the West. But Asia, with the exception of Japan, seems to be doing quite nicely, thank you. Why?

As the world’s economy globalized, corporate interests sought out places with abundant resources. One of the key resources is a cheap and willing work force. So, as Western work forces became more expensive, their services were replaced with more affordable alternatives elsewhere. First Japan, then China and southeast Asia, then Brazil and now India became sources for abundant cheap labour.

Raw materials are shipped to the cheap labour and finished goods are shipped back to us. The theory was we’d become a post-industrial consumer society. We wouldn’t need those dirty production jobs any more. But it hasn’t quite worked out that way.

In reality, we—especially the Americans—transferred our production capabilities abroad, while borrowing heavily to finance our new consumer society. And governments got into the game, too. Today, the combined U.S. private and public debt is somewhere north of $22 trillion. And still the U.S. is spending over $620 billion a year to maintain the world’s largest armed force.

And in a wonderfully twisted stroke of timing, the other great resource, fossil fuel, is declining. Which means that, with rising shipping costs, all those cheap goods produced elsewhere are going to start costing a lot more—or they’ll stop selling altogether. Because, as we all realize by now, real wages in North America stalled decades ago, and the real hidden unemployment rate has been hovering around 15 percent of the workforce.

And then the credit bubble burst in 2007-08 as American homeowners ran out of cash. The banks took over their homes, and with no one repaying loans, banks around the world went broke. And so the American government and the privately-held U.S. Federal Reserve began “quantitative easing,” or in other words, printing cash to bail out the banks.

But what actually triggered the collapse was a very odd thing. Back in 2007 there was some major law enforcement pressure on the U.S. banks—especially Wachovia, J.P. Morgan and Bank of America—to stop laundering Mexican drug money. Wachovia had in fact processed $378.4 billion in cocaine cash (equivalent to 30 percent of the Mexican GDP) and when “caught” paid a paltry $110 million fine. So the money from the drug lords dried up. And guess what? Without the big injection of illegal money, the world banks began suffering from a shortfall of liquidity—in other words, they ran out of cash. Unbelievable?

Yes, but here’s what Antonio Maria Costa, then head of the United Nations office on drugs and crime, said at the height of the 2008 banking crisis about the proceeds from drugs and crime: the dirty money was “the only liquid investment capital” available to banks on the brink of collapse. “Inter-bank loans were funded by money that originated from the drugs trade,” he said. “There were signs that some banks were rescued that way.” To check it out further, read the story at www.guardian.co.uk.

The real point is, despite the huge government bailout, the system is still broke. The watered-down U.S. dollar may be dethroned as the world’s official trade currency. The entire global economy is teetering between deflation and inflation. And it may be that we get both. Either way the ordinary worker is about to get the shaft, along with many vulnerable regional industries.

If it’s deflation, our houses and possessions will lose value. Credit will dry up and the economy will stall. If it’s inflation, the cost of everything will go up, and the cost of borrowing will rise dramatically. Either way, the savings of ordinary people will be wiped out and only the trans-national elite will survive.

But monopoly capitalism is cannibalizing our industry here at home, too. The recent withdrawal of Ganong (“Canada’s Chocolate Family”) and Flakeboard from government hearings on the Enbridge natural gas supply monopoly is one example. With distribution rates threatening to rise to 25 times the North American average, both local companies (neither of which is global nor a monopoly) face an uncompetitive situation—which could directly affect the wages and job security of every employee. Not to mention the effect the ailing U.S. economy could have on all our local businesses, from manufacturing to tourism.

Yet, strangely, despite all this economic bad news, all we seem get from our incumbent Conservative party is the bogey man spectre of a left-leaning coalition government and bad-mouthing Mr. Ignatieff's leadership abilities. I hardly think those are the real problems, do you?

And despite paying 6 cents more, I didn’t win that free coffee, either.