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supply of foreign exchange reserves to defend themselves against specu-
lative currency raids. At a meeting of regional finance ministers in
1997, the government of Japan proposed an Asian Monetary Fund
(AMF) that would provide the needed liquidity with fewer conditions
than were imposed by the IMF. But the AMF, which would have
directly competed with the IMF of the Western bankers, met with
strenuous objection from the U.S. Treasury and failed to materialize.
Meanwhile, the IMF failed to provide the necessary reserves, while
insisting on very high interest rates and “fiscal austerity.” The result
was a liquidity crisis (a lack of available money) that became a major
regional depression. Weisbrot testified:
The human cost of this depression has been staggering. Years of
economic and social progress are being negated, as the
unemployed vie for jobs in sweatshops that they would have
previously rejected, and the rural poor subsist on leaves, bark,
and insects. In Indonesia, the majority of families now have a
monthly income less than the amount that they would need to
buy a subsistence quantity of rice, and nearly 100 million people
“ half the population “ are being pushed below the poverty line.7
In 1997, more than 100 billion dollars of Asia™s hard currency re-
serves were transferred in a matter of months into private financial
hands. In the wake of the currency devaluations, real earnings and
employment plummeted virtually overnight. The result was mass
poverty in countries that had previously been experiencing real eco-
nomic and social progress. Indonesia was ordered by the IMF to un-
peg its currency from the dollar barely three months before the dra-
matic plunge of the rupiah, its national currency. In an article in Mon-
etary Reform in the winter of 1998-99, Professor Michel Chossudovsky
This manipulation of market forces by powerful actors constitutes
a form of financial and economic warfare. No need to re-colonize
lost territory or send in invading armies. In the late twentieth
century, the outright “conquest of nations,” meaning the control
over productive assets, labor, natural resources and institutions,
can be carried out in an impersonal fashion from the corporate
boardroom: commands are dispatched from a computer terminal,
or a cell phone. Relevant data are instantly relayed to major
financial markets “ often resulting in immediate disruptions in
the functioning of national economies. “Financial warfare” also

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

applies complex speculative instruments including the gamut of
derivative trade, forward foreign exchange transactions, currency
options, hedge funds, index funds, etc. Speculative instruments
have been used with the ultimate purpose of capturing financial wealth
and acquiring control over productive assets.
Professor Chossudovsky quoted American billionaire Steve Forbes,
who asked rhetorically:
Did the IMF help precipitate the crisis? This agency advocates
openness and transparency for national economies, yet it rivals
the CIA in cloaking its own operations. Did it, for instance,
have secret conversations with Thailand, advocating the
devaluation that instantly set off the catastrophic chain of events?
. . . Did IMF prescriptions exacerbate the illness? These countries™
monies were knocked down to absurdly low levels.8
Chossudovsky warned that the Asian crisis marked the elimination
of national economic sovereignty and the dismantling of the Bretton
Woods institutions safeguarding the stability of national economies.
Nations no longer have the ability to control the creation of their own
money, which has been usurped by marauding foreign banks.9

Malaysia Fights Back

Most of the Asian geese succumbed to these tactics, but Malaysia
stood its ground. Malaysian Prime Minister Mahathir Mohamad said
the IMF was using the financial crisis to enable giant international
corporations to take over Third World economies. He contended:
They see our troubles as a means to get us to accept certain
regimes, to open our market to foreign companies to do business
without any conditions. [The IMF] says it will give you money if
you open up your economy, but doing so will cause all our banks,
companies and industries to belong to foreigners. . . .
They call for reform but this may result in millions thrown
out of work. I told the top official of IMF that if companies were
to close, workers will be retrenched, but he said this didn™t matter
as bad companies must be closed. I told him the companies
became bad because of external factors, so you can™t bankrupt
them as it was not their fault. But the IMF wants the companies
to go bankrupt.10

Web of Debt

Mahathir insisted that his government had not failed. Rather, it
had been victimized along with the rest of the region by the interna-
tional system. He blamed the collapse of Asia™s currencies on an or-
chestrated attack by giant international hedge funds. Because they
profited from relatively small differences in asset values, the specula-
tors were prepared to create sudden, massive and uncontrollable out-
flows of capital that would wreck national economies by causing capi-
tal flight. He charged, “This deliberate devaluation of the currency of
a country by currency traders purely for profit is a serious denial of
the rights of independent nations.” Mahathir said he had appealed to
the international agencies to regulate currency trading to no avail, so
he had been forced to take matters into his own hands. He had im-
posed capital and exchange controls, a policy aimed at shifting the
focus from catering to foreign capital to encouraging national devel-
opment. He fixed the exchange rate of the ringgit (the Malaysian na-
tional currency) and ordered that it be traded only in Malaysia. These
measures did not affect genuine investors, he said, who could bring in
foreign funds, convert them into ringgit for local investment, and ap-
ply to the Central Bank to convert their ringgit back into foreign cur-
rency as needed.
Western economists waited for the economic disaster they assumed
would follow; but capital controls actually helped to stabilize the
system. Before controls were imposed, Malaysia™s economy had
contracted by 7.5 percent. The year afterwards, growth projections
went as high as 5 percent. Joseph Stiglitz, chief economist for the
World Bank, acknowledged in 1999 that the Bank had been “humbled”
by Malaysia™s performance. It was a tacit admission that the World
Bank™s position had been wrong.11
David had stood up to Goliath, but the real threat to the
international bankers was Malaysia™s much more powerful neighbor
to the north. The Chinese Dragon was not only still standing; it was
breathing fire . . . .

Web of Debt

Chapter 27

The flowers had been too strong for the huge beast and he had given
up at last, falling only a short distance from the end of the poppy bed
. . . . “We can do nothing for him,” said the Tin Woodman sadly. “He
is much too heavy to lift. We must leave him here to sleep . . . .”

“ The Wonderful Wizard of Oz,
“The Deadly Poppy Field”

N apoleon called China a sleeping giant. “Let him sleep,”
Napoleon said. “If he wakes, he will shake the world.”
China has now awakened and is indeed shaking the world. The
Dragon has become so strong economically that it has been called the
greatest threat to national security the United States faces, accounting
for the greatest imbalance of any country in the U.S. trade budget
deficit ($150 billion of $500 billion by 2004).1
This balance-of-trade problem is not new. The British were al-
ready complaining of it in the early nineteenth century. Then they
discovered that exporting opium from India to China could offset their
negative trade balance and give them control of China™s financial sys-
tem at the same time. The Chinese Emperor responded by banning
the opium trade, after China started losing huge amounts of money to
England. England then declared war, initiating the Opium War of
1840. The Chinese people wound up with two sets of imperial rulers,
the British as well as their own.2
The leader of the revolution that finally overthrew 2,000 years of
Chinese imperial rule was Dr. Sun Yat-sen, now revered as the father
of modern China by Nationalists and Communists alike. Like the
Chapter 27 - Waking the Sleeping Giant

leaders of the Japanese Meiji revolution of the 1860s, he was a proteg©
of a group of American nationalists of the Lincoln/Carey faction. Sun™s
fundamental principles, known as the “Three Principles of the People,”
were based on the concept presented by Lincoln in the Gettysburg
Address: “government of the people, by the people, and for the people.”
Sun was educated in Hawaii, where he built up his revolutionary
organization at the house of Frank Damon, the son of Reverand Samuel
Damon, who had run the Hawaii delegation to the American
Centennial in Philadelphia in 1876. Frank Damon provided money,
support and military training to Sun™s organization; and Hawaii
became its base for making a revolutionary movement in China.3
The Chinese Republic was proclaimed just before World War I.
After Sun™s death, the Nationalists lost control of mainland China to
the Chinese Communists, who founded the People™s Republic of China
in 1949; but the Communists retained much of the “American sys-
tem” in creating their monetary scheme, which was a Chinese varia-
tion of Lincoln™s Greenback program. Before that, banknotes had been
issued by a variety of private banks. After 1949, these banknotes were
recalled and the renminbi (or “people™s currency”) became the sole
legal currency, issued by the People™s Bank of China, a wholly govern-
ment-owned bank. The United States and other Western countries
imposed an embargo against China in the 1950s, blocking trade be-
tween it and most of the rest of the world except the Soviet bloc. China
then adopted a Soviet-style centrally-planned economy; but after 1978,
it pursued an open-door policy and was transformed from a centrally-
planned economy back into a market economy.4 Private industry is
now flourishing in China, and privatization has been creeping into its
banking system as well; but it still has government-owned banks that
can issue national credit for domestic development.5
By 2004, China was leading the world in economic productivity,
growing at 9 percent annually. In the first quarter of 2007, its economic
growth was up to a remarkable 11.1 percent, with retail sales climbing
15.3 percent. The commonly-held explanation for this impressive
growth is that the Chinese are willing to work for what amounts to
slave wages; but the starving poor of Africa, Indonesia, and Latin
America are equally willing, yet their economies are languishing.
Something else distinguishes China, and one key difference is its
banking system. China has a government-issued currency and a
system of national banks that are actually owned by the nation.6
According to Wikipedia, the People™s Bank of China is “unusual in

Web of Debt

acting as a national bank, focused on the country not on the currency.”
The notion of “national banking,” as opposed to private “central
banking,” goes back to Lincoln, Carey and the American nationalists.
Henry C K Liu distinguishes the two systems like this: a national bank
serves the interests of the nation and its people. A central bank serves
the interests of private international finance. He writes:
A national bank does not seek independence from the
government. The independence of central banks is a euphemism
for a shift from institutional loyalty to national economic well-
being toward institutional loyalty to the smooth functioning of
a global financial architecture . . . [Today that means] the sacrifice
of local economies in a financial food chain that feeds the issuer
of US dollars. It is the monetary aspect of the predatory effects
of globalization.
Historically, the term “central bank” has been interchange-
able with the term “national bank.” . . . However, with the
globalization of financial markets in recent decades, a central
bank has become fundamentally different from a national bank.
The mandate of a national bank is to finance the sustainable
development of the national economy . . . . [T]he mandate of a modern-
day central bank is to safeguard the value of a nation™s currency in a
globalized financial market . . . through economic recession and
negative growth if necessary. . . . [T]he best monetary policy in the
context of central banking is . . . set by universal rules of price
stability, unaffected by the economic needs or political
considerations of individual nations.7
In 1995, a Central Bank Law was passed in China granting cen-
tral bank status to the People™s Bank of China (PBoC), shifting the
PBoC away from its previous role as a national bank. But Liu says the
shift was in name more than in form:
It is safe to say that the PBoC still follows the policy directives of
the Chinese government . . . . Unlike the Fed which has an arms-
length relationship with the US Treasury, the PBoC manages
the State treasury as its fiscal agent. . . . Recent Chinese policy
has shifted back in populist directions to provide affirmative
financial assistance to the poor and the undeveloped rural and
interior regions and to reverse blatant income disparity and
economic and regional imbalances. It can be anticipated that
this policy shift will raise questions in the capitalist West of the
political independence of the PBoC. Western neo-liberals will
Chapter 27 - Waking the Sleeping Giant

be predictably critical of the PBoC for directing money to where
the country needs it most, rather than to that part of the economy
where bank profit would be highest.8
Besides its “populist” banking system, China is distinguished by
keeping itself free of the debt web of the IMF and the international
banking cartel; and by refusing to let its currency float, a policy that
has fended off the currency manipulations of international specula-
tors. The value of the renminbi is kept pegged to the dollar; and un-
like Mexico in the 1990s, China has such a huge store of dollar re-
serves that it is impervious to the assaults of speculators. In 2005,
China succumbed to Western pressure and raised its dollar peg slightly;
but the renminbi continued to be pegged to its dollar counterpart, and
the government retained control of its value.
As in Hitler™s Germany, the repression of human rights in China
deserves serious censure; but something in its economy is clearly work-


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