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but according to The Economist:
So far they have been wrong. Argentina does lack foreign
investment. But its own smaller companies have moved quickly
to expand capacity in response to demand. . . . Overall,
investment has almost doubled as a percentage of GDP since
2002, from 11% to 21.4%, enough to sustain growth of 4% a
year. 10
When President Kirchner paid off the IMF debt in 2006, he had
hoped to get the central bank™s dollar reserves debt-free; but he was
foiled by certain “international funds.” One disgruntled Argentine
commentator wrote:
Kirchner tried until the last moment to get hold of the [central
bank™s] funds as if they were surplus, without contracting any
debt, but the international funds warned him that if he did so he
would provoke strong speculation against the Argentine peso.
Kirchner folded like a hand of poker and indebted the State at a
higher rate.11
Chapter 25 - Another Look at the Inflation Humbug

The “international funds” that threatened a speculative attack on
the currency were the so-called “vulture funds” that had previously
bought Argentina™s public debt, in some cases for as little as 20 percent
of its nominal value. Vulture funds are international financial
organizations that specialize in buying securities in distressed
conditions, then circle like vultures waiting to pick over the remains of
the rapidly weakening debtor. To avoid a speculative attack on its
currency from these funds, the Argentine government was forced to
issue public debt of $11 billion, in order to absorb the pesos issued to
buy the dollars to pay a debt to the IMF of under $10 billion. But to
Kirchner, it was evidently worth the price to get out from under the
thumb of the IMF, which he said had been “a source of demands and
more demands,” forcing “policies which provoked poverty and pain
among Argentine people.”12

The Case of Zimbabwe

The same foreign banking spider that has been busily spinning its
debt web in the former Soviet Union and Latin America has also been
at work in Africa. A case recently in the news was that of Zimbabwe,
which in August 2006 was reported to be suffering from a crushing
hyperinflation of around 1,000 percent a year. As usual, the crisis
was blamed on the government frantically issuing money; and in this
case, the government™s printing presses were indeed running. But the
currency™s radical devaluation was still the fault of speculators, and it
might have been avoided if the government had used its printing presses
in a more prudent way.
The crisis dates back to 2001, when Zimbabwe defaulted on its
loans and the IMF refused to make the usual accommodations,
including refinancing and loan forgiveness. Apparently, the IMF
intended to punish the country for political policies of which it
disapproved, including land reform measures that involved reclaiming
the lands of wealthy landowners. Zimbabwe™s credit was ruined and
it could not get loans elsewhere, so the government resorted to issuing
its own national currency and using the money to buy U.S. dollars on
the foreign-exchange market. These dollars were then used to pay the
IMF and regain the country™s credit rating.13 Unlike in Argentina,
however, the government had to show its hand before the dollars were
in it, leaving the currency vulnerable to speculative manipulation.
According to a statement by the Zimbabwe central bank, the

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hyperinflation was caused by speculators who charged exorbitant rates
for U.S. dollars, causing a drastic devaluation of the Zimbabwe
The government™s real mistake, however, may have been in playing
the IMF™s game at all. Rather than using its national currency to buy
foreign fiat money to pay foreign lenders, it could have followed the
lead of Abraham Lincoln and the Guernsey islanders and issued its
own currency to pay for the production of goods and services for its
own people. Inflation would have been avoided, because the newly-
created “supply” (goods and services) would have kept up with
“demand” (the supply of money); and the currency would have served
the local economy rather than being siphoned off by speculators. But
while that solution worked in Guernsey, Guernsey is an obscure island
without the gold and other marketable resources that make Zimbabwe
choice spider-bait. Once a country has been caught in the foreign
debt trap, escape is no easy matter. Even the mighty Argentina, which
at one time was the world™s seventh-richest country, was unable to
stand up to the IMF and the “vulture funds” for long.
All of these countries have been victims of the Tequila Trap “
succumbing to the enticement of foreign loans and investment, opening
their currencies to speculative manipulation. Henry C K Liu writes
that the seduction of foreign capital was a “financial narcotic that
would make the Opium War of 1840 look like a minor scrimmage.”14
In the 1990s, a number of Southeast Asian economies would find this
out to their peril . . . .

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Chapter 26

Now it is well known that when there are many of these flowers
together, their odor is so powerful that anyone who breathes it falls
asleep. And if the sleeper is not carried away from the scent of the
flowers, he sleeps on and on forever.
“ The Wonderful Wizard of Oz,
“The Deadly Poppy Field”

T he deadly poppy fields that captured Dorothy and the Lion
were an allusion to the nineteenth century Opium Wars, which
allowed the British to impose economic imperialism on China. The
Chinese government, alarmed at the growing number of addicts in
the country, made opium illegal and tried to keep the British East India
Company from selling it in the country. Britain then forced the issue
militarily, acquiring Hong Kong in the process.
To the Japanese, it was an early lesson in the hazards of “free
trade.” To avoid suffering the same fate themselves, they tightly sealed
their own borders. When they opened their borders later, it was to
the United States rather than to Britain. The Japanese Meiji Revolution
of 1868 was guided by Japanese students of Henry Carey and the
American nationalists. It has been called an “American System
Renaissance,” and Yukichi Fukuzawa, its intellectual leader, has been
called “the Benjamin Franklin of Japan.” The feudal Japanese warlords
were overthrown and a modern central government was formed. The
new government abolished the ownership of Japan™s land by the feudal
samurai nobles and returned it to the nation, paying the nobles a sum
of money in return.1
How was this massive buyout financed? President Ulysses S. Grant
warned against foreign borrowing when he visited Japan in 1879. He

Chapter 26 - Poppy Fields, Opium Wars, and Asian Tigers

said, “Some nations like to lend money to poor nations very much. By
this means they flaunt their authority, and cajole the poor nation.
The purpose of lending money is to get political power for themselves.”
Great Britain had a policy of owning the central banks of the nations
it occupied, such as the Hongkong and Shanghai Bank in China. To
avoid that trap, Japan became the first nation in Asia to found its own
independent state bank. The bank issued new fiat money which was
used to pay the samurai nobles. The nobles were then encouraged to
deposit their money in the state bank and to put it to work creating
new industries. Additional money was created by the government to
aid the new industries. No expense was spared in the process of in-
dustrialization. Money was issued in amounts that far exceeded an-
nual tax receipts. The funds were, after all, just government credits “
money that was internally generated, based on the credit of the gov-
ernment rather than on debt to foreign lenders.2
The Japanese economic model that evolved in the twentieth century
has been called a “state-guided market system.” The state determines
the priorities and commissions the work, then hires private enterprise
to carry it out. The model overcame the defects of the communist
system, which put ownership and control in the hands of the state.
Chalmers Johnson, president of the Japan Policy Research Institute,
wrote in 1989 that the closest thing to the Japanese model in the United
States is the military/industrial complex. The government determines
the programs and hires private companies to implement them. The
U.S. military/industrial complex is a form of state-sponsored
capitalism that has produced one of the most lucrative and successful
industries in the country.3 The Japanese model differs, however, in
that it achieved this result without the pretext of war. The Japanese
managed to transform their warrior class into the country™s
industrialists, successfully shifting their focus to the peaceful business
of building the country and developing industry. The old feudal
Japanese dynasties became the multinational Japanese corporations
we know today “ Mitsubishi, Mitsui, Sumitomo, and so forth.

The Assault of the Wall Street Speculators

The Japanese state-guided market system was so effective and
efficient that by the end of the 1980s, Japan was regarded as the leading
economic and banking power in the world. Its Ministry of International
Trade and Industry (MITI) played a heavy role in guiding national

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economic development. The model also proved highly successful in
the “Tiger” economies -- South Korea, Malaysia and other East Asian
countries. East Asia was built up in the 1970s and 1980s by Japanese
state development aid, along with largely private investment and MITI
support. When the Soviet Union collapsed, Japan proposed its model
for the former communist economies, and many began looking to Japan
and South Korea as viable alternatives to the U.S. free-market system.
State-guided capitalism provided for the general welfare without
destroying capitalist incentive. Engdahl writes:
The Tiger economies were a major embarrassment to the IMF
free-market model. Their very success in blending private
enterprise with a strong state economic role was a threat to the
IMF free-market agenda. So long as the Tigers appeared to
succeed with a model based on a strong state role, the former
communist states and others could argue against taking the
extreme IMF course. In east Asia during the 1980s, economic
growth rates of 7-8 per cent per year, rising social security,
universal education and a high worker productivity were all
backed by state guidance and planning, albeit in a market
economy “ an Asian form of benevolent paternalism.4
High economic growth, rising social security, and universal
education in a market economy “ it was the sort of “Common Wealth”
America™s Founding Fathers had endorsed. But the model represented
a major threat to the international bankers™ system of debt-based money
and IMF loans. To diffuse the threat, the Bank of Japan was pressured
by Washington to take measures that would increase the yen™s value
against the dollar. The stated rationale was that this revaluation was
necessary to reduce Japan™s huge capital surplus (excess of exports
over imports). The Japanese Ministry of Finance countered that the
surplus, far from being a problem, was urgently required by a world
needing hundreds of billions of dollars in railroad and other economic
infrastructure after the Cold War. But the Washington contingent
prevailed, and Japan went along with the program. By 1987, the
Bank of Japan had cut interest rates to a low of 2.5 per cent. The
result was a flood of “cheap” money that was turned into quick gains
on the rising Tokyo stock market, producing an enormous stock market
bubble. When the Japanese government cautiously tried to deflate the
bubble by raising interest rates, the Wall Street bankers went on the
attack, using their new “derivative” tools to sell the market short and
bring it crashing down. Engdahl writes:

Chapter 26 - Poppy Fields, Opium Wars, and Asian Tigers

No sooner did Tokyo act to cool down the speculative fever,
than the major Wall Street investment banks, led by Morgan
Stanley and Salomon Bros., began using exotic new derivatives
and financial instruments. Their intervention turned the orderly
decline of the Tokyo market into a near panic sell-off, as the Wall
Street bankers made a killing on shorting Tokyo stocks in the process.
Within months, Japanese stocks had lost nearly $5 trillion in
paper value.5
Japan, the “lead goose,” had been seriously wounded. Washington
officials proclaimed the end of the “Japanese model” and turned their
attention to the flock of Tiger economies flying in formation behind.

Taking Down the Tiger Economies:
The Asian Crisis of 1997

Until then, the East Asian countries had remained largely debt-
free, avoiding reliance on IMF loans or foreign capital except for direct
investment in manufacturing plants, usually as part of a long-term
national goal. But that was before Washington began demanding
that the Tiger economies open their controlled financial markets to
free capital flows, supposedly in the interest of “level playing fields.”
Like Japan, the East Asian countries went along with the program.
The institutional speculators then went on the attack, armed with a
secret credit line from a group of international banks including
They first targeted Thailand, gambling that it would be forced to
devalue its currency and break from its peg to the dollar. Thailand
capitulated, its currency was floated, and it was forced to turn to the
IMF for help. The other geese then followed one by one. Chalmers
Johnson wrote in The Los Angeles Times in June 1999:
The funds easily raped Thailand, Indonesia and South Korea,
then turned the shivering survivors over to the IMF, not to help
victims, but to insure that no Western bank was stuck with non-
performing loans in the devastated countries.6
Mark Weisbrot testified before Congress, “In this case the IMF not
only precipitated the financial crisis, it also prescribed policies that
sent the regional economy into a tailspin.” The IMF had prescribed
the removal of capital controls, opening Asian markets to speculation
by foreign investors, when what these countries really needed was a

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