Dangers and Lessons from the Perennial Israeli-Palestinian War: The Big Picture

By Dr. Rodrigue Tremblay, emeritus professor of economics at the Université de Montréal and a former minister in the Quebec government

[False flag operations:] "The powers-that-be understand that to create the appropriate atmosphere for war, it is necessary to create within the general populace a hatred, fear or mistrust of others regardless of whether those others belong to a certain group of people or to a religion or a nation."  James Morcan (1978- ), New Zealander-born actor, writer, producer and a resident of Australia, 2014.

"I know what America is. America is a thing you can move very easily, move it in the right direction. They won't get in our way." Benjamin Netanyahu (1949- ), Israeli Prime Minister (1996-1999), (2009-2021) and (2022- ), addressing Israeli settlers in the West Bank, (as quoted in 'Netanyahu: 'America is a thing you can move very easily'", The Washington Post, July 16, 2010.)

"We must remember that in time of war what is said on the enemy's side of the front is always propaganda, and what is said on our side of the front is truth and righteousness, the cause of humanity and a crusade for peace." Walter Lippmann (1889-1974), American journalist, (in 'Public Opinion', 1922).

“Those who want thwart the creation of a Palestinian state should support the strengthening of Hamas and the transfert of funds to Hamas.“ Benjamin Netanyahu (1949- ), Israeli Prime Minister, (during a meeting of the Likud party, in 2019).

Introduction

Nowadays, almost all wars, involving governments with access to enormous propaganda resources, are either deliberately provoked or simply the result of false flag operations, camouflaged under a veil of lies and fake news. — In time of war, all parties lie. —With the help of passive or complacent medias, not one distracted person in a hundred can see clearly what is really going on.

Rocket and missile clashes between Islamist Hamas and Israel, and atrocities and war crimes committed against civilians, are not new in that part of the world. The most recent outbreak of violence is, in reality, the continuation of a deep conflict, which is ongoing and which is entering into a new cycle of escalating violence.

Indeed, two years ago, in May 2021, serious riots took place inside the compound of al-Aqsa mosque in Jerusalem's Old City, which left hundreds of Palestinians and many police officers injured. What followed was an escalation of attacks between Israel and Hamas. The latter launched more than 1,000 rockets from the Gaza Strip towards Israel, while the Israeli army, in return, dropped a deluge of fire on the blockaded Gaza Strip, causing more than 150 Palestinian deaths and 10 deaths on the Israeli side.

Only six months ago, on April 5th and 6th, 2023, there were new violent clashes in Jerusalem when Israeli police raided again the al-Aqsa mosque, in the pursuit of  "agitators" who had barricaded themselves inside.

It is therefore somewhat puzzling why so many observers were taken by surprise when the Hamas launched its rain of rockets on Israel, on Saturday, October 7, 2023, in an operation specifically called al-Aqsa Deluge.

Likewise, we can only remain perplexed when the Israeli government itself says it was taken by surprise, since its relations with the Palestinian populations have been extremely tense, particularly since 2021.

Nevertheless, the British Guardian and other medias published the official version according to which there was a "catastrophic failure of intelligence by Israel", regarding the offensive launched from Gaza against Israeli towns. Such an attack, it said, must have been in preparation for many months and "it is a mystery why Israeli intelligence appears to have had no idea it was coming."

Significantly, other media also reported that Israeli Defense Minister Yoav Gallant (1958- ) stated that, "We will change the reality on the ground in Gaza." "What existed before will no longer be."

The same minister also declared on Monday, October 9, that he was imposing "a complete siege" on the Gaza Strip: "There will be no electricity, no food, no fuel supplies, everything is closed." Adding, "We are fighting human animals and we act accordingly"—forgetting that the Nazis described German Jews as 'subhumans' (Untermenschen), to justify genocide.

The Israeli prime minister, Benjamin Netanyahu (1949- ), an ultra-Orthodox politician who favors "Eretz Israel", the "Greater Israel" of the Bible, proclaimed that Israel was at war and that the Palestinians would pay a heavy price. 

How to make sense of all this?

How to explain that the Netanyahu Israeli government had no clue that the Hamas was planing an attack?

The central question is why and how the Israeli army and navy, which have imposed a tight land and sea blockade on everything entering the Gaza Strip since 2007, as well as the Mossad secret services, could not have been aware of what was coming?

Is this likely? Did someone deliberately close his eyes? It would seem crucial for the future to elucidate such a mystery.

The alternative explanation would be that we are possibly in the presence of a more or less voluntary laissez-faire attitude on the part of certain authorities, starting with Prime Minister Benjamin Netanyahu himself, by not taking the necessary precautions to prevent an outbreak of military attacks by Hamas.

Why were warnings about an imminent attack ignored?

More fundamentally, perhaps, is how to interpret the report that Egypt's intelligence minister, General Abbas Kamel, called Netanyahu days before the Hamas attacks, advising him that islamist militants in Gaza were planning "something unusual, a terrible operation"?

The Egyptians were reportedly aghast at Netanyahu's passivity upon hearing the warning. "We repeatedly warned the Israelis that the situation had reached the point of explosion and would be very serious. But they took it lightly", said an Egyptian services official, as reported by the Times of Israel.

Such warnings were ignored and dismissed by Netanyahu's office as fake news! Even so, why did they not investigate them and prepare to deal with them, as a simple precaution?

What is more, the report that the Netanyahu government had been warned days before the Hamas attacks has been confirmed by the U.S. House Foreign Affairs Committee Chairman, Representative Michael McCaul (R-Tex), who is privy to classified information.

The question thus arises: Has the Netanyahu government really been facing an unforeseen attack from Hamas, or are we rather in the presence of a war that has been somewhat facilitated, by omission or otherwise? In the latter case, it could be politically explosive for the Netanyahu government. It would, in fact, be much more than simple negligence.

Indeed, this would seem to be the case. According to a poll taken on Thursday, October 12, an overwhelming majority of 86% of Israelis believe their government and Netanyahu are to blame for the attacks and for the massacre that followed inside Israel. Besides, more than half of Israelis believe Netanyahu should resign.

This also seems to be the opinion of famous American investigative journalist, Seymour Hersh, who believes that Mr. Netanyahu will have to answer for his governance before the Israeli population and that his days in power could be numbered. The Israeli government has a preexisting plan to eradicate Hamas, raze Gaza and expel its population.

As in any other conflict, it is important to ask the question Cui bono? or, who ultimately benefits?

This 'new' deadly Israeli-Palestinian war, presented as a 'surprise', could well come at the right time for two politicians, Benjamin Netanyahu and Joe Biden (1946- ).

• On the one hand, the new hard-line coalition government of Prime Minister Benjamin Netanyahu, elected at the end of 2022, is the most right-wing administration in Israeli history. Indeed, Netanyahu has allied himself with far-right and anti-Palestinian Zionist groups, which propose the annexation of part of the West Bank, occupied by Israel since 1967.

And, to make its intentions clear, the new coalition government's first guiding principle, published on Wednesday, December 28, 2022, declared that "the Jewish people have an exclusive and unquestionable right to all areas of the land of Israel".

On the other hand, Netanyahu provoked huge anti-government demonstrations in his country when he pushed through a judicial overhaul to favor the religious extremists who are members of his coalition government.

• For his part, President Joe Biden has often said, here and here, that he considers himself to be a 'Zionist'. He has declared that Netanyahu has been a "friend for decades", and he has pledged that U.S. support for Israel was "set in stone and unwavering".

However, Biden is currently low in the polls, both because of his poor record and for his advanced age.

Indeed, one year before the American presidential elections, the presumptive Democratic candidate has little chance of being re-elected, despite the legal troubles of his presumed Republican opponent, Donald Trump, or anyone else that the Republicans may choose as their candidate.

Only a large-scale war involving the United States could possibly change the situation and bail out Biden politically, allowing him to run as Commander-in-Chief.

Indeed, Joe Biden did not waste any time, at the start of the new Israeli-Palestinian conflict, to promise an additional military aid of $14.3 billion to Israel, beyond the $3.8 billion annually paid to the country.

Moreover, during his trip to Israel, on Wednesday, October 18, he is reported to have privately given Netanyahu the green light for an Israeli armed invasion of the Gaza Strip.

However, such a neocon-inspired and extremely biased one-sided foreign policy is not without creating increased frictions within the U.S. State Department.

The added complications of natural gas under the sea next to the Gaza Strip

To show how complex the situation is in that part of the world, there exists a large natural gas deposit off the coast of the Gaza Strip, which could greatly profit the Palestinians. The exploitation of this gas field, called Gaza marine, has been the subject of negotiations between the Israeli government, the Palestinian Authority and Egypt. All this necessarily also involves the Hamas group, a competitor to the Palestinian Authority, the latter being under the control of the Fatah party.

Future events should make things clearer concerning the behind the scenes objectives of both sides, in this umpteenth Israeli-Palestinian war, which seems to resurface each time the situation reaches an explosive level.

Conclusions

A first important geopolitical and moral lesson emerges here, and it is the enormous human disaster resulting from those repeated wars between Israelis and Palestinians. When misguided, visionless, incompetent or dishonest leaders allow a political problem to fester, many innocent people pay for their carelessness and irresponsibility.

A second major observation is that some leaders, in a position to do so, are currently doing next to nothing to strengthen international peace institutions, but seem rather to enjoy stirring up conflicts around the world.

Third, it must be said that it is not only where there are journalists and photographers that atrocities and war crimes are committed. Agressions, whether consisting in launching missiles or dropping bombs on populations, kill and massacre people (men, women and children), indifferently, on one side as much as the other. They are both immoral.

Fourth, barbarous and indiscriminate atrocities, which are carried out with modern weapons against civilian populations, are not only illegal under international law, they are unacceptable under basic humanitarian principles.

Fifth, the worst and everlasting human conflicts seem to be those that are fought within the context of a religious war.

Finally, states and terrorist organizations that do not respect international law create problems for themselves and represent an existential threat to civilization and to world peace.

__________________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

Posted Friday, October 20, 2023.

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The 1982 "coup de force" of the federal government against Quebec has made Quebec a de facto domestic colony—and why correctives are now required to rectify that injustice

By Dr. Rodrigue Tremblay, emeritus professor of economics at the Université de Montréal and a former minister in the Quebec government

"There is no core identity, no mainstream in Canada and (...) that makes us the first post-national state." Justin Trudeau (1971- ), in an interview with the New York Times Magazine, Oct. 2015.

"To those fleeing persecution, terror & war, Canadians will welcome you, regardless of your faith. Diversity is our strength -#Welcome to Canada." Justin Trudeau  (1971- ). message on Twitter, Jan 28, 2017.

"Under the doctrine of multiculturalism, we have encouraged different cultures to live separate lives, apart from each other and the mainstream... I believe it's time to turn the page on the failed policies of the past." David Cameron (1966- ), British Prime Minister, in a speech in Munich, Germany, Feb. 5, 2011.

"Official multiculturalism [in Canada]... was a bad idea in the beginning, and in time will probably be seen as one of the gigantic mistakes of recent public policy in Canada." Robert Fulford (1932- ), Canadian editor, in an article in The Globe and Mail, Feb. 19, 1997.

It is important to cast a new look at the referendum held in Quebec on May 20, 1980, and at the subsequent coup by the Canadian federal government to strip the people and the government of Quebec of historic rights and powers.

• A plebiscite rather than a true referendum

The referendum held in Quebec in 1980 was more a plebiscite than a true referendum. Indeed, the Quebec government of Premier René Lévesque had put only its own constitutional option on the ballot, excluding all the others. In addition, a plebiscite approach is more risky, geopolitically speaking, than a genuine referendum, in the event of a defeat of the government's request for a mandate.

It was my feeling at the time, as a member of the Quebec National assembly, that in the event of a foreseeable defeat of the plebiscite launched by the government, such a rebuff of the government's option by the electorate could likely place Quebec at the mercy of the Canadian federal government of Prime Ministre Pierre Elliott Trudeau.

• To be truly democratic, the 1980 referendum should have included more than a single constitutional option for Quebec

To be democratic, a real referendum held in Quebec in 1980 (like the one held in Newfoundland in 1948, which included a choice among three options), should also have included three options, namely:

A- the option of the Parti Québecois government (a mandate to negotiate the option of Sovereignty-Association as explained in a ''White Paper');

B- the option of a renewed federalism of Claude Ryan (explained in the 'Beige Book' of the Liberal Party of Quebec); and, 

C- an autonomous confederal-type state status for Quebec (with powers as explained in my book 'The Third Option').

If no option had obtained 50% of the votes in the first round, a second round would have been necessary (as was the case in Newfoundland in 1948). The exercise would have been consistent with the democratic principle, because the result would have reflected the majority choice of the people.

• The referendum defeat on May 20, 1980 opened the door to a repatriation and modification of the Canadian constitution, without the participation of the Government of Quebec and its population

The referendum defeat of the Lévesque government was unequivocal, with a result of, Yes: 40%; No: 60%. It provided a useful pretext for the federal government of P. E. Trudeau to announce that it could proceed unilaterally with the repatriation of the British North America Act of 1867 (BNAA) from the British Parliament. Not only that, but it also intended to add new modifications of its own, which would reduce significantly the historic rights and powers of the Parliament of Quebec.

In such circumstances, both the Quebec government and the official opposition would be placed in a very disadvantageous position to prevent the federal government from moving forward with its unilateral plan.

On the one hand, the leader of the No camp, Claude Ryan, had morally 'won' the 1980 plebiscite, but he was not in power to defend his option in favor of renewed federalism with increased powers for Quebec. On the other hand, federal Prime Minister Pierre Elliott Trudeau was in charge in Ottawa, and he could take advantage of the situation to impose his own constitutional option, which had never been discussed and debated democratically during the Quebec referendum period of 1980.

Even though Premier Lévesque probably showed poor judgment in not resigning after his referendum defeat, this in no way justified the federal government to want to unilaterally modify the Canadian constitution, without the agreement of Quebec, and to forcibly reduce the historical rights and powers of the Quebec Parliament.

• The 'Group of Eight' and the role of the federal Supreme Court

The Lévesque Quebec government of the time, in addition to not resigning after its referendum defeat, chose to join seven other provincial governments to form the so-called 'Group of Eight', in a final attempt to prevent the federal government from going ahead with its unilateral constitutional plan.

Such a plan B to counter the visions of the federal government involved great risks for Quebec. Indeed, all it took for the federal government to isolate the Quebec government and rally the nine English-speaking provinces to its cause was to make minor concessions to the latter provinces. This took place on the fateful night of November 4, 1981, at the Château Laurier in Ottawa—an event known in Quebec as the 'Night of the Long Knives', in the absence of representatives of the Quebec government.

This is, in a few words, how Quebec and its population became the victimes of a historic constitutional 'coup de force", which paved the way for the adoption of the Constitution Act of 1982, officially ratified on April 17, 1982, by Queen Elizabeth II. This law was imposed upon Quebec, without ever having been signed by the government of Quebec, nor accepted by the Quebec people during a formal constitutional referendum.

This was particularly the case in matters of language, education, culture and secularism, by virtue of the general tradition of the Civil Code of Quebec, which dates back to the Quebec Act of 1774. These are areas which previously fell under its jurisdiction and which are deemed necessary to ensure its survival over time, as the only province with a French-speaking majority in the Canadian federation.

It must be pointed out that the Supreme Court of Canada, an exclusively federal body, played a crucial role in creating the injustice done to Quebec, in 1982. This is unlike what exists in the German federation, where a similar court is composed of judges, half of whom are appointed by the central government and half by the Länders, or provinces.

Indeed, the Supreme Court ruled on September 28, 1981, that the right of veto traditionally exercised by Quebec in constitutional matters, one of the four provinces signing the Confederative Pact of 1867, (and whose modifications were based on the rule of unanimity until then), did not have a legal basis but only a political one.

That interpretation allowed the Court to conclude that the repatriation of the Canadian constitution from London and its in-depth modification could be done, provided that a "sufficient number" of provincial government agreed, without taking into account the interests and prerogatives of the only province with a French-speaking majority in Canada, Quebec.

The Constitution Act of 1982 transferred important political powers to the Supreme Court—which had already benefited enormously from the repatriation of the powers of the Privy Council from London, in 1949—to not only rule on the form of laws adopted democratically by parliaments, but also on their political merits.

Political and legal centralization at the Canadian federal level, unjustly imposed on Quebec since 1982, tends de facto to reduce Quebec, the only majority home of French speakers in the Canadian federation, to the status of a domestic colony, politically subject to the dictates of English Canada and its representatives. 

Such an increased and forcibly imposed political and legal centralization has set back the historical rights and powers of Quebec and its population by more than 100 years, i.e. since the adoption of the British North America Act of 1867.

The result has been a major breach of justice, democracy and the principle of the right of people to self-govern. Indeed, it is a reality that since 1982, Canadian democracy has been placed in a political-legal straitjacket.

• The failed policies of state multiculturalism

The political ideology of multiculturalism, which was inserted in the Constitutional Act of 1982—never signed by the government of Quebec—has also served as a justification to adopt a federal policy of mass immigration. This has been a central policy of the liberal federal government of Justin Trudeau since 2015.

Canada is the only country in the world that has constitutionalized such a political ideology, intrinsically changing and optional, and this, without a referendum. Over time, such an ideology could pose a threat to the demographic stability of Quebec and, eventually, to the very survival of the French-Canadian nation as a whole, in Canada.

Conclusion

Consequently,

Considering that the Constitutional Act of 1982 forcibly imposed a reduction in Quebec's historic rights and powers, particularly in matters of language, education, culture and secularism, all areas that previously fell under its exclusive jurisdiction, and which are required to ensure its survival over time as the only province in Canada with a French-speaking majority;

Considering that Quebec is not a province like the others, because it is the only province with a French-speaking majority in Canada and because it is unacceptable that existential rights and powers were forcibly taken away from it, without its consent;

Considering that such a situation could ultimately lead to the 'louisianization' of Quebec and possibly its disappearance as the only French-speaking majority state within the Canadian federation;

Considering that neither the government of Quebec, nor the Quebec population, were directly and democratically consulted on the acceptance or refusal of the Constitutional Act of 1982;

It must be concluded that political corrections are necessary before irreparable damage results from the tutelage of the Quebec government and the subjugation of the Quebec population to the Anglo-Canadian majority.

Therefore, the Parliament of Quebec should solemnly declare that it has never ratified the Constitutional Act of 1982 and proclaim, as soon as possible, that it is an autonomous state within the Canadian federation, with all the historical rights and powers necessary for its survival and development.

Note that this is in no way an unjustified status in the circumstances, in history and in law, since there are such states or autonomous regions in some forty countries in the world, all established to allow important linguistic minorities to survive justly and prosper in peace.

___________________________________________________-

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

Posted Thursday, September 28, 2023.

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The Moral Legacy of Hiroshima and Nagasaki

By Dr. Rodrigue Tremblay 

(Author of the book about morals "The Code for Global Ethics" and his book about geopolitics "The New American Empire"

(N.B. First published on August 8, 2010)

When U.S. President Harry S. Truman decided on his own to use the atom bomb, a barbarous weapon of mass destruction, against the Japanese civilian populations of the cities of Hiroshima and of Nagasaki, on August 6 and on August 9, 1945, the United States sided officially on the wrong side of history.

General Dwight D. Eisenhower, Supreme Commander of the Allied Forces in Europe and 34th President from 1952 to 1960, said it in so many words: "... the Japanese were ready to surrender and it wasn't necessary to hit them with that awful thing." (Newsweek, November 11, 1963). Between 90,000 and 120,000 people died in Hiroshima, and between 90,000 and 120,000 people died in Nagasaki, for a grand total of between 150,000 and 200,000. most cruel deaths.

It seems that military man Eisenhower was more ethical than Freemason small-town politician Harry S. Truman regarding the fateful decision.

In being the first country to use nuclear weapons against civilian populations, the United States was then in direct violation of internationally accepted principles of war with respect to the wholesale and indiscriminate destruction of populations. Thus, August 1945 is a most dangerous and ominous precedent that marked a new dismal beginning in the history of humanity, a big moral step backward.

In future generations, it most certainly will be considered that the use of the atom bomb against the Japanese civilian populations of Hiroshima and Nagasaki was a historic crime against humanity that will stain the reputation of the United States for centuries to come. It can also be said that President Harry S. Truman, besides lying to the American people about the whole sordid affair (see official quotes in the link below), has left behind him a terrible moral legacy of incalculable consequences to future generations of Americans.

Many serf-serving reasons have been advanced for justifying Truman's decision, such as the objective of saving the lives of American soldiers by shortening the war in the Pacific, and avoiding a military invasion of Japan with a quick Japanese surrender. That surrender came on August 15, 1945, and it was made official on September 2, with the signing of the Japanese instrument of Surrender, nearly one month after the bombing of the cities of Hiroshima and Nagasaki.

Nazi Germany had capitulated on May 8, 1945, and World War II was already over in Europe. There was also the diplomatic fear that the Soviet Red Army could have invaded Japan, as they had done in Berlin, thus depriving the Unites States of a hard fought clear-cut victory against Japan.

But by the end of July 1945, according to military experts, the Japanese military apparatus had de facto been defeated. It is also true that the militarist Japanese Supreme Council for the Direction of the War was stalling with the aim of getting better capitulation terms, hoping for a negotiated settlement, especially regarding the future role of their emperor Hirohito as formal head of state.

In Europe, the allies had caused a recalcitrant Nazi Germany to accept an unconditional surrender and there were other military means to force the Japanese government to surrender. The convenient pretext of rushing a surrender carries no weight compared to the enormity of using the nuclear weapon on two civilian targets.

And even if President Truman was anxious to demonstrate the power of the atom bomb and impress his Soviet friends—and possibly also assert himself as a political figure vis-à-vis previous President Franklin D. Roosevelt, who had died a few months earlier, on April 12, 1945—this could have been done while targeting remote Japanese military targets, not on targeting entire cities. It seems that there were no moral considerations in this most inhuman decision.

Conclusion

Since that fateful month of August 1945, humanity has embarked upon a disastrous nuclear arms race and is rushing toward oblivion with its eyes open and its mind closed.

________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

or here:

https://www.globalresearch.ca/the-moral-legacy-of-hiroshima-and-nagasaki/20533

Posted Tuesday, August 8, 2023.

(Originally first published on August 8, 2010/ See the original article with quotations:

https://www.globalresearch.ca/the-moral-legacy-of-hiroshima-and-nagasaki/20533

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President Biden Makes the CIA Director Member of his Cabinet: Message and Consequence

By Dr. Rodrigue Tremblay

(Author of the book about morals "The Code for Global Ethics" and his book about geopolitics "The New American Empire")

"For some time I have been disturbed by the way the CIA has been diverted from its original assignment. It has become an operational and at times a policy-making arm of the government." Harry S. Truman (1884-1972), 33rd U.S. President,(1945-1953), (in an editorial titled "Limit CIA Role to Intelligence", The Washington Post, Dec. 22, 1963, p. A11).

[The CIA] "has become so removed from its intended role... I never had any thought that when I set up the CIA that it would be injected into peacetime cloak and dagger operations... The last thing we needed was for the CIA to be seized upon as something akin to a subverting influence in the affairs of other people." Harry S. Truman  (1884-1972). Ibid.

" I think [the creation of the CIA] was a mistake. And if I'd known what was going to happen, I never would have done it." Harry S. Truman (in an interview with his biographer Mr. Merle Miller, in the 1960's).

" Let's remember, the CIA's job is to go out and create wars." Jesse Ventura (James George Janos) (1951- ), American former wrestler, actor, author and Governor of Minnesota, 1999-2003, (in 'Jesse Ventura suggests US may be behind Middle East violence' Sept. 15, 2012).

On Friday, July 21, 2023, President Joe Biden (1942- ) made an ominous decision: He elevated William Burns, the Director of the Central Intelligence Agency (C.I.A.), to the level of a member of his Cabinet. This made the CIA Director the second intelligence officer in the Biden Cabinet, alongside the Director of National Intelligence, Avril Haines.

This could be more than a symbolic move to reward a political ally. In fact, this could be a message that the Biden administration plans to be more heavily involved in foreign affairs in the near future, especially if the Ukraine war were to escalate from a proxy war to a more open U.S.-Russia military conflict.

This could also indicate that the U.S. president, mired in a low approval rating in public polls, has concluded that the only way for him to win a second term would be to wage a political campaign as Commander-in-Chief. That worked very well for President George W. Bush (1946- ) during the 2004 presidential campaign, after his administration's military invasion of Iraq in March 2003, under false pretenses. Indeed, it has been demonstrated that it is easier for American politicians to win reelection during wartime elections.

A quick history of the CIA

President Harry S. Truman (1884-1972) created the Central Intelligence Agency in 1947. His initial aim was to form a small information gathering office to keep the U.S. president informed on world affairs. Today, the CIA has evolved into the equivalent of a secret government for foreign affairs, within the U.S. government. Its annual budget, close to $100 billion, is larger than the budgets of three quarters of the world's countries.

One of the CIA's missions over time, besides collecting information and spying, has been to carry on covert operations and illegal acts to advance narrow American interests around the world. Most Americans are unaware of such secret operations conducted in their name.

President Harry S. Truman, founder of the CIA, wrote that he was deeply disappointed about how the agency had evolved

On December 22, 1963, only one month after the assassination of President John F. Kennedy, former President Truman wrote an editorial in the Washington Post, in which he revealed that he had serious misgivings about the increasing role of the CIA within the U.S. government.

Indeed, the former president and initiator of the CIA feared that it had been "diverted from its original assignment" (intelligence collection and analysis) and that it had "become an operational and at times a policy-making arm of the Government."

Truman's conclusion was quite damning: "There is something about the way the CIA has been functioning that is casting a shadow over our historic position and I feel that we need to correct it".

What President Truman and other American thinkers have feared is that the United States be turned into a lawless military empire with a self-serving imperial hubris. Indeed, a military empire in a perpetual state of war, however well disguised, cannot remain a democracy, because this would contradict the values of freedom and liberty at home.

Conclusion

President Truman's words and warnings reverberate today, considering that the current American president is elevating the CIA Director to the level of a Secretary in his Cabinet.

President Joe Biden does not seem to have the same apprehensions about the danger to American democracy by having the CIA directly involved in the making of American foreign policy. This is not the first time that Joe Biden has distanced himself from American traditions. In fact, while forming his Cabinet, in 2021, he reneged on the tradition of naming a civilian as Secretary of Defense when he instead chose to name retired Army Gen. Lloyd Austin to the post.

With such decisions, President Joe Biden reveals his preference for an imperial America, in contradiction to what President Harry S. Truman intended when he created the CIA. Biden may be more of a militarist and a warmonger than many people think.

___________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

Posted Wednesday, July 26, 2023.

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Disastrous Proxy Wars by Great Powers Create Military, Monetary, Financial and Economic Chaos in the World

By Dr. Rodrigue Tremblay

(Author of the book about morals "The Code for Global Ethics" and his book about geopolitics "The New American Empire")

"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex... Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together." Dwight D. Eisenhower (1890-1969), 34th President of the United States, (1953-1961), (in his 'Farewell Address', Jan. 17, 1961)

"Were the Soviet Union to sink tomorrow under the waters of the ocean, the American military-industrial complex would have to remain, substantially unchanged, until some other adversary could be invented. Anything else would be an unacceptable shock to the American economy." George F. Kennan (1904-2005), American diplomat and historian, (in his preface to Norman Cousins' 1987 book 'The Pathology of Power')

"A nation cannot become free and at the same time continue to oppress other nations." Fredrich Engels (1820-1895), German social scientist and father of Marxist theory, (in "Speech on Poland', 1847)

Sometimes politicians like to sprinkle their speeches and statements with words like "diplomacy" and "peace". This does not insure, in so doing, that they really mean what they say. In fact, such grandiloquent talk could be a cover-up for their real intentions, which may be the very opposite to diplomatic solutions and peaceful coexistence to solving world problems. In the realm of politics, actions count more than words.

A good point in this case could be what U.S. President Joe Biden meant when he said, during a talk at the State Department on February 4, 2021: "diplomacy is back at the center of our Foreign Policy."

He repeated the same message a few months later, in a speech at the United Nations, on September 21, 2021, saying that "we're opening a new era of relentless diplomacy", and pledging that "we are not seeking a new Cold War or a world divided into rigid blocs." 

And to be well understood, Mr. Biden made the following commitment: "We must redouble our diplomacy and commit to political negotiations, not violence, as the tool of first resort to manage tensions around the world." He even went on quoting the opening words of the 1948 Universal Declaration of Human Rights: "The equal and inalienable rights of all members of the human family is the foundation of freedom justice, and peace in the world."

These were noble pledges.

The reality: The U.S. Government has largely abandoned multilateralism for a unilateral foreign policy mainly concentrated on NATO

However, what has really happened during the first three years of the Biden administration?

Following in the footsteps of a few preceding administrations, the Joe Biden administration has de facto abandoned the search for the common good of all countries within a multilateral approach. Indeed, far from actively leading the world with diplomacy in the hope of reducing military conflicts around the world, the Biden administration has embarked upon a bellicose foreign policy.

This is a policy inspired by neoconservative advisers, and it calls for increased military U.S. interventions abroad, on a permanent basis, outside of the framework of the U.N. Charter, which, it should be emphasized, was signed by all member nations. It has instead chosen to mainly pursue its foreign policy within the narrow framework of an increasingly offensive NATO.

Presently, there are two mainly U.S.-NATO-led proxy wars that are of immediate concern: a hot one in Ukraine directed at Russia, and one brewing in Taiwan and aimed at China.

In Ukraine, this has taken the form of the U.S. and other NATO countries shipping huge amounts of arms and equipment, and even some covert operations personnel, to that country neighboring Russia, including illegal depleted uranium weapons.

Even if public opinion in Western countries is still strongly behind the Russian-Ukrainian war, especially among the young and less among older generations, one of the consequences of the war, according to some polls, has been to isolate somewhat the United States and its NATO allies in certain parts of the world. In some countries, for example, notably in Asia, Africa and South America, the position seems to be "none of our business".

Fall-outs from the American-NATO-led proxy wars against Russian and China

According to official propaganda, Russian embarked upon an 'unprovoked' war against Ukraine, on February 24, 2022. However, things are a bit more complicated, because the United States and NATO have been heavily involved in that unnecessary war since at least 2014, and credibly since 1991, as far as the U.S. government is concerned.

First of all, after the collapse of the Soviet Union, in 1991, it is widely established through declassified documents that U.S. Secretary of State James Baker, and the representatives of important European nations, made a solemn commitment to Russia, on February 9, 1990, that NATO would not be expanded "one inch" into Eastern Europe—conditional to Russia's acceptance of the reunification of the two Germanys.

Secondly, as professor John Mearsheimer of the University of Chicago has often said (and I agree), there would not have been a Ukraine War if Joe Biden had not been in the White House. It was, indeed, President Biden's insistence on having NATO expand to the very doorsteps of Russia, with missiles pointed toward Moscow, that was the main reason why Russia felt directly threatened and why it invaded Ukraine.

Even Pope Francis arrived at the same conclusion, that the main trigger of the Ukraine War was "NATO barking at Putin's door."

Thirdly, let us remember that it was the Obama administration (2009-2017), with then Vice-President Joe Biden involved, that bankrolled, to a large extent, the overthrow of the elected pro-Russia Ukrainian government of Viktor Yanukovych, in February 2014.

This was clearly established by then U.S. Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland (a well-known neocon), who confirmed publicly, on December 13, 2013, that the U.S. government had invested $5 billion in Ukraine, under the pretext of 'promoting democracy', One may ask if it is an accepted practice by democracies to overthrow elected governments?

Fourthly, published documents indicate that the policy of encircling Russia militarily, an act of war implicitly not allowed under the U.N. Charter, is a neoconservative idea originating from the Rand Corporation—a think-tank heavily financed by the military-industrial complex (MIC) and deeply involved in framing U.S. foreign policy.

Indeed, the policy of an aggressive military stand against Russia is well outlined in a 2019 report, entitled "Overextending and Unbalancing Russia". Therefore, when Defense Secretary Gen. Lloyd Austin said publicly, on April 25, 2022, that the Biden administration's objective in Eastern Europe was to "see Russia weakened", it was a clear indication that the Rand Corporation's strategy of militarily encircling Russia had become the official foreign policy of the Biden administration, even at the risk of turning such a localized conflict into a global one.

That may be a reason why people in the know do not swallow the propaganda line that the U.S. and NATO are in Ukraine to "save democracy". In fact, there is no democracy in Ukraine, since the Ukrainian government of Volodymyr Zelensky has abolished eleven political parties.

Failed attempts by third parties to bring peace to Ukraine

The above could explain why the Biden administration has been quick to turn down any attempt to prevent or to end the Ukraine War.

For example, even when it was still possible to avoid a conflict, on December 7, 2021, during a Biden-Putin direct phone talk, President Biden undiplomatically turned down demands to consider Russian security considerations and stop pushing NATO right to Russia's border. [N.B.: It is relevant to remember that when the shoe was on the other foot, in October 1962, and the USSR wanted to place missiles in Cuba, at 90 miles from the USA, it was seen by the John F. Kennedy administration in Washington D.C. as an unacceptable breach of American security.]

The Israeli government and the government of Turkey both have attempted to mediate a peace between Russia and Ukraine, but without any success.

First, in the beginning days of the conflict, in early March 2022, then Israeli Prime Minister (June 2021-June 2022) Naftali Bennett attempted to mediate a speedy end to the Russia-Ukraine confrontation. He came very close to succeeding when Russian President Vladimir Putin dropped his demand to seek Ukraine's disarmament and Ukrainian President Voldymyr Zelensky promised not to join NATO. A bilateral peace deal was ready to be signed in April 2022.

Secondly, in March 2022, the Turkish government also tried to bring a peace agreement closer between Russia and Ukraine. After successful talks were held in Istanbul, between officials of both countries, the two sides agreed on the framework for a tentative deal.

Considering that both Russia and Ukraine were willing to make concessions and with peace deals close at hand, why did the Israeli and the Turkish attempts at mediation fail?

Former Israeli Prime Minister Bennett gave an answer: the Biden administration commissioned then-British Prime Minister Boris Johnson to go to Kyiv and sabotage any peace deal. Some Western powers saw it to their advantage that the war in Ukraine continue.

Not too surprisingly, the latest attempt to end the Ukraine War—China's 12-point peace proposal for a "Political Settlement for the Ukraine Crisis", made on February 24, 2023—has so far also been derailed.

It would seem that those who planned for and 'invested' much in such a war do not wish to lose face. For one, President Biden has branded the Chinese plan (which calls for de-escalation toward a cease-fire in Ukraine, respect for national sovereignty, establishment of humanitarian corridors, resumption of peace talks and a stop to unilateral sanctions), as "not rational".

While President Joe Biden has concentrated his efforts on fueling the fire of war in Ukraine, Chinese President Xi Jinping seems to have filled the void and has developed the stature of a peace broker around the world.

In the end, considering the many parties involved in the conflict (Russia, Ukraine, United States, NATO, European Union), and their intransigence, the UN Secretary General, Antonio Guterres, threw in the towel and confessed, on May 9, 2023, that peace negotiations in Ukraine were "not possible at this time". Warmongers are in charge in many nations, and no ceasefire can be expected at this time in Eastern Europe.

Flight from the U.S. dollar as a consequence of financial and economic sanctions

Holding financial assets denominated in U.S. dollars has recently become a risky proposition. Any government imprudent enough to do so exposes itself to political pressures from the U.S. government and, if it does not abide, its dollar assets could be arbitrarily frozen, unilaterally seized or simply confiscated. The list of countries so punitively 'sanctioned' has been getting longer and longer each month.

One would think that an international currency should not be 'weaponized' in that way, unless one really wishes to destabilize the entire international monetary and financial system and create chaos in the world economy.

On April 16, 2023, even the U.S. Treasury Secretary Janet Yellen (1946- ) mused aloud about the possibility of the U.S. dollar loosing its dominance in international finance and as a reserve currency.

Indeed, even if it is not easy, some countries have stopped settling their cross-border trade in U.S. dollars and are either using the Chinese Yuan, the Indian Rupee (INR), bilateral barter or their local currencies to do so. There are calls on the part of the BRICS nations (Brazil, Russia, India, China and South Africa) to avoid using the U.S. dollar, as a response to unilateral U.S.-led financial and economic sanctions.

Such a movement to dedollarize global trade is an ominous development for international monetary and financial markets, with potentially enormous consequences, both monetary and economic.

In fact, the entire international monetary framework of the Bretton Woods System of payments, established in 1944 around the U.S. dollar (linked at the time to gold at a fixed rate of $35 per ounce), could be in jeopardy. Indeed, if the international payment system were to become more fragmented, the volume of international trade and the flows of capital movements could decline, and this could have a disastrous impact on the growth of the world economy.

Conclusions

As things stand now, despite efforts, hopes do not look promising for a quick resolution to the proxy war in Ukraine, and for lowering the escalating tensions over Taiwan.

First, if Great Powers hiding behind their veto at the U.N. Security council cannot contribute to peace in the world, they should at least not actively contribute to war. Unfortunately, in the 21st Century, the United Nations has become the carpet on which Great Powers wipe their feet.

Secondly, with its proxy wars, the U.S. government should realize that it is losing its moral ascendency and influence in the world. And it is evident why this is the case: the Biden administrations's current neocon-inspired foreign policy of using NATO as its main instrument of intervention around the world, especially with its proxy conflicts with Russia and China, while snubbing the United Nations and its Charter, is shrouded with risks and may be a very bad idea.

Indeed, such a policy is isolating the United States and its NATO allies from the rest of the world. In the future, this could undermine their legitimacy, efficiency and influence outside North America and Western Europe. Pushed to the limit, such a development could result in unraveling the very international framework of global institutions that was established in the aftermath of World War II.

Thirdly, if one adds the persistent and threatening danger of a nuclear war to the equation, it would seem obvious to clear minds that a negotiated peace in Ukraine, in particular, should be preferable to a murderous and disastrous war, without ends, with few possible winners, other than arms dealers, and many losers all around.

____________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

Posted Tuesday, May 16, 2023.

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Wednesday, March 22, 2023

American Recurring Banking and financial Crises: the Historical and Regulatory Context

By Dr. Rodrigue Tremblay

(Author of the book about morals "The Code for Global Ethics" and his book about geopolitics "The New American Empire")

"All crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment." John K. Galbraith (1908-2006), Canadian-born American economist, (in 'A Short History of Financial Euphoria' 1994).

"History shows that once an enormous debt has been incurred by a nation, there are only two ways to solve it: one is simply declare bankruptcy, the other is to inflate the currency and thus destroy the wealth of ordinary citizens." Adam Smith (1723-1790), Scottish economist, father of modern economics, (in 'The Wealth of Nations', 1776).

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."  Milton Friedman (1912-2006), (in 'The Counter-Revolution in Monetary Theory', 1970).

Some six years from now will be the 100th anniversary of the 1929 stock market crash, marking the onset of the Great Depression (1929-1939).

These were crucial events in the United States and in many other countries. In the U.S., in particular, it heralded a period of nationalism, protectionism and sweeping banking regulations.

The 1929 crash occurred after a period called the "Roaring Twenties", which followed World War I (1914-1918) and the Spanish flu pandemic of 1918-1919. It was a period of general economic prosperity, with many economic innovations and industries (automobile, electricity, telephone, radio, films etc.), being propelled by low interest rates and ongoing speculation.

What turned the stock market crash into a severe economic downturn was the failure of many banks and the credit crunch that followed.

Many American banks had followed the risky banking practice of lending large portions of their deposits for stock market speculation, and they did not survive the crash. Altogether, during the 1930 decade, it is estimated that as many as 9,000 U.S. banks failed, creating an important contraction of the money supply.

Even though the Federal Reserve central bank had been established in 1913, it was somewhat clumsy in designing and in implementing monetary policy. For instance, it did not widely use open market purchases to inject badly needed monetary liquidity in the economy, as money supply was contracting. Instead, in order to meet the requirements of the international Gold standard system of the time, the Fed kept raising its discount rate to prevent an exodus of money and gold from the United States, thus contributing to creating a deflation.

The financial crisis really became an international one when the large Austrian bank Creditanstalt failed, on May 11, 1931. This was a bank that had debts with many other banks. Its failure impacted negatively other international banks, and it contributed to making the financial crisis a truly international one.

All this is to say that a cascade of bank failures is a very dangerous phenomenon in a market economy. That is why there is an obvious need to prevent unduly risky investments by banks, through appropriate public regulation, to protect the public interest.

Why can deposit-financed commercial banks fall victim to a run on the bank?

The answer to the above question lies in the 'fractional reserve banking' system under which banks operate. Essentially, commercial banks borrow short-term funds from depositors and invest most of that money in profitable longer-term loans. For security and liquidity, they are required to maintain a mandatory minimum percentage of their deposits as cash reserves, the so-called fractional reserve, to be available for the withdrawal of deposits. The rest is considered capital to be loaned and invested in loans and in securities.

However, if confidence in a bank comes into question, especially if its loans or investments have lost value for any reason, (as indicated in the section of 'unrealized losses' in its books), people could fear for the safety of their deposits, and they may attempt to withdraw their savings during a panicky run on the bank. Such a panic or a crisis of confidence is bound to deplete a bank's meager reserves, and the lending institution may then face a liquidity crisis, and not be able to reimburse all depositors.

Without outside intervention, this could force a bank to close its doors and declare bankruptcy. If many banks find themselves in the same precarious illiquid situation, the entire banking system could enter into a systemic banking crisis, through a widespread contagion or domino effect.

Two major legislative attempts to regulate and two attempts to deregulate banks in the U.S.

The onslaught of the 1929 Stock market crash and the unfolding of the Great Depression, which translated into 15 million Americans losing their jobs and half of the country's banks failing by 1933, made the adoption of banking reforms a necessity.

In 1933, President Franklin D. Roosevelt (1882-1945) signed into law the famous Glass-Steagall Act of 1933, which forced a clear separation between commercial banks, which rely on deposits from the public, and investment banks, which borrow money by issuing shares or bonds. And, because commercial banks have a fiduciary mandate to protect depositors' money, they also had to follow strict guidelines for their lending in order to avoid making too risky investments, which could jeopardize their solvency.

Moreover, in order to prevent financial panics and destabilizing runs on the bank, the Banking Act of 1933 established the Federal Deposit Insurance Corporation (FDIC), whose purpose was to restore trust in the American banking system. It guaranteed that small depositors would not lose their money if a bank becomes insolvent. On the other hand, insured banks had to follow strict rules of investing.

Even though the Glass-Steagall Act was slightly amended over time, its main features remained the foundation of the stability of the U.S. banking system for some sixty-six years, that is to say until 1999.

The 1999 Gramm-Leach-Billey Act to deregulate the American banking system

American banks had often lobbied Congress and the U.S. government to relax the rules of investing contained in the Glass-Steagall Act. In November 1999, then Democratic President Bill Clinton signed the Gramm-Leach-Billley Act (GLBA) into effect, after Congress had voted overwhelmingly in its favor, with a vote of 90-8 in the Senate and by a vote of 362-57 in the House.

That law repealed important sections of the Glass-Steagall Act. Its main feature was to remove the legal barriers that prevented financial institutions from merging commercial banking, investment banking and insurance services in a single holding entity. The purpose was to permit a consolidation of the American banking industry and create large financial conglomerates deemed to be financially more stable.

Some congressmen and many economists argued that the new law was a step backward in the wrong direction, because it could make banks too large to be managed, and because it could make it easier for them to increase the level of risk-taking in their investments. The end result would be to render such large financial conglomerates "too big to fail". This, in turn, would imply that the government would have no other choice but to bail them out with public money, in case of insolvencies.

The Dobb-Frank Act of 2010 vs. the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018

In 2007-2008, the Subprime Mortgage Crisis broke out in the United States, with three large investment banks failing (Bear Stearns, Merrill Lynch and Lehman Brothers). This time, the culprit was largely unregulated derivative financial products, such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which lost a lot of their value when the housing bubble burst and widespread mortgage defaults ensued.

The failure of those large investment banks played a central role in the 2008-2009 global recession, dubbed the 'Great Recession'.

A partial rollback of banking regulations in 2018

After the economic debacle of 2008-2009, the Barack Obama administration and the Democratic-controlled Congress came to the conclusion that new banking standards were required if future financial crises were to be avoided. And, President Barak Obama signed the Dodd-Frank Act on July 21, 2010.

That law was designed to prevent the excessive risk-taking behavior that had led to the 2007-2008 financial crisis and cost hundreds of billions of dollars in public bailouts of failed financial institutions. With that objective in mind, the 2010 law intended to eliminate the classification of banks deemed 'too big to fail', by submitting medium size banks to the same stringent regulatory supervision as very large banks.

However, a well-known politico-banking scenario again came into play.

Some bankers began complaining that the new investment rules to prevent excessive risk taking were too strict. Their main demand was that the threshold for the new regulations to apply, i.e. to banks with assets worth $50 billion and above, should be raised to $250 billion and above. In simpler terms, the demands were that the new stricter banking regulations should apply only to very large banks, the so-called 'too-big-to-fail' banks, and not to medium-sized banks with assets and liabilities below $250 billion.

The Republican-dominated U.S. Congress acquiesced to the demands formulated by the banking lobby. —On March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief and Consumer Protection Act, exempting hundreds of U.S. banks that the Dodd-Frank Act's banking regulations had placed in the category of banks having between $50 billion and $250 billion of assets.

The new 2018 regulatory law also weakened the so-called Volcker Rule, which prohibits banking entities from engaging in proprietary trading and forbids banking entities from investing in or sponsoring hedge funds or private equity funds. —Thereafter, on May 24, 2018, President Donald Trump signed the partial repeal of the 2010 Dobb-Frank law.

The onset of a new banking crisis in March 2023

During the fatidic weekend of March 10-12, 2023, three American banks, whose total financial assets were below the $250 billion asset threshold, failed and required immediate intervention by regulators to prevent a wider contagion.

They were the Silicon Valley Bank ($212 billion assets), with significant exposure to the technology sector, the Signature Bank ($110 billion assets) and the smaller Silvergate Bank ($11 billion assets), the last two banks catering partly to cryptocurrencies users and to cryptocurrency-related firms.

The March 19, 2023 shotgun merger of the large Credit Suisse bank with the larger Swiss UBS bank is also indicative that large international banks can be fragile and may require an intervention on the part of regulators.

The U.S. Fed's role in creating monetary conditions leading to banking and financial crises

In the aftermath of the 2006-2009 financial and economic turmoil, the U.S. Fed and other large central banks in Europe embarked upon a nonconventional and risky monetary policy of massive money creation, with the so-called policy of quantitative easing (QE), and of artificially pushing interest rates way down, even to negative nominal interest rates, in some instances.

A clear indication of how the U.S. Federal Reserve central bank has been pumping liquidity into the monetary system can be seen in how fast its balance sheet, part of the monetary base of the economy, increased. It stood at roughly 0.9 trillion U.S. dollars, in 2007, but grew to 8.34 trillion U.S. dollars, as of March 8, 2023, an enlargement of more than 900 per cent.

This has had the consequence of the Fed bringing down nominal interest rates close to zero, just as other central banks in Europe and in Japan have also done.

However, a sure result of keeping interest rates artificially ultra low, for too long, is to create financial bubbles, in the bond market, in the stock market and in the real estate market. Lo and behold, in recent years, these markets have reached price levels that are way above their historical average.

This may have pleased some investors and some traders, but it may also have painted the central bank into a corner, if inflation gets out of hand and the central bank has to raise interest rates to fight it.

For reference: in the mid-summer of 2021, it was obvious that inflation in the U.S. was much above the targeted rate of 2 percent and was rising, but the Fed continued nevertheless its quantitative easing policy of purchasing $140 billion of bonds and mortgage-backed securities, each month.

The Fed's view at the time was that inflation was a 'transitory' phenomenon, not expected to last. Therefore, the Fed kept pushing liquidity into the U.S. economy until March of 2022, when it was obliged to reverse course as inflation was getting up steam. —By then, indeed, the inflation rate was already at 8.5 percent.

The fact of the matter is, when central banks raise interest rates after they have kept them ultra low for too long, it becomes very tricky for them to fight inflation without placing their banking sector in jeopardy.

That is because a sustained rise in interest rates causes the prices of bonds and of other securities already issued to fall, along with the price of real estate and of stock prices. Banks that are saddled with so-called 'unrealized losses', at such a critical time, may find themselves in financial difficulty, when they cannot afford to raise rates on their deposits, or appeal to outside help.

Conclusions

First, we may contrast public regulation of new drugs and public regulation of new financial products.

When it comes to the health of people, and when pharmaceutical companies propose new drugs or medications, such new medical products must be submitted, tested and approved by a public federal agency. In the United States, the Food and Drug Administration (FDA), founded in 1906, is responsible for regulating and approving new drugs and medications, before they can be distributed and sold.

However, when it comes to the health of the economy, it is much easier for the banking industry to invent risky new financial products and sell them to the public. Indeed, there is no statutory testing of the viability of such new financial products before their distribution. It's only after the fact—when it is discovered that they have been toxic for the financial system and the overall economy—that their use is curtailed and may be more strictly regulated.

Maybe the banking industry should be treated more as a public utility infrastructure, essential for the good functioning of the economy, in order to prevent market economies from following a disruptive boom and bust cycle, each 15-20 years.

Second, the recurrent periods of financial and economic instability could be a consequence of the dual mandate given to central banks. Indeed, besides serving as lender of last resort, in times of liquidity crises, a central bank's important role is to supervise the fiduciary money creating process, in order to prevent both inflation and deflation.

However, in 1978, the U.S. Congress adopted the Full Employment and Balanced Growth Act, which gave the Federal Reserve central bank an explicit "dual mandate".

Indeed, not only must the Fed manage and supervise the banking system and the money supply, in order to avoid inflation or deflation, but it must also "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates."

At times, such a dual mandate may enter into contradiction and make monetary policy most difficult to implement. This may also explain the kind of yoyo monetary policy that the Fed has adopted recently, pushing interest rates way down and pushing them way up, when inflation becomes a threat.

Economic growth and employment creation in the long run are primarily a government responsibility through its fiscal, industrial and other economic policies, even though monetary policy may influence economic activity and employment in the short-run.

Especially in times of inflation, a central bank with a dual mandate may find itself in a conundrum. That is because to control inflation, it must slowdown the rate of increase of the money supply and raise interest rates, thus slowing down economic growth and employment.

However, we may point out that the European Central Bank (ECB) does not have an explicit dual mandate. It has only one primary objective and that is price stability, subject to which it may pursue secondary objectives. Similarly for the Bank of Canada, whose primary mandate is to maintain low and stable inflation, while supporting "maximum sustainable employment".

Finally, in general, let us keep in mind that the more private bankers are shielded from their errors and mistakes by generous public bailouts, the more they will be tempted to invent esoteric and risky debt instruments, and the more the economy will be subjected to destabilizing financial crises.

____________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr Tremblay's site or email to a friend here.

Posted Wednesday, March 22, 2023.

*** To receive new postings of Dr. Tremblay's articles, 

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© 2023 Dr. Rodrigue Tremblay