A politically conservative co-worker recently assured me that immigrants caused the current economic mess by taking out mortgages that they could not afford. Thankfully a liberal one retorted that there was no way for immigrants to have known that their jobs would be gone, and many of them deported. It was time to breathe a sign of relief. Immigrants may be stupid but they are certainly not schemers and criminals. But the nagging feeling remained. Both the conservative and liberal essentially agreed that immigrants, along with a few other poor natives, were responsible for this mess – albeit for different reasons. So off I went to gather economic ammunition to argue my point of view and defend immigrants. In the process I not only discovered the actual culprits but reassured myself that immigrants were actually the reason why the economy is not in total shambles. It should surprise no proper American wannabe that the actual culprits are Islamists. Yes they are the cause of the present economic mess. In fact they have been the cause of almost all modern economic debacles. No let’s take that a little further back. Islamists have been the reason why the western tip of Eurasia has done all that it has over the past 600 years. To explain this we can legitimately start the civilized history of western Eurasia the day Emir Boabdil relinquished power and kissed the hand of King Ferdinand in the 15th century. At this point the local village level horsemen, called knights, had learnt all that they needed to know about the complicated politics of forcing their will on large populations and geographic areas, from Muslims and Byzantines. By then they had also inquisitioned the basics of economics and finance out of African – Muslim and Sephardic – gurus. They were well on their way to becoming a civilization of their own. The hardware of Civilization The basics were simple and the cycles predictable. A small clique in an uncivilized area would learn how to fight and impose its will on the local population. In a few generations the population would forget that they used to be free and members of the clique would become legitimate rulers. Soon it becomes evident that the clique needs resources – that it has not had to work for because it is busy ruling – to hire other full time fighters. At this point the clique has lost most of its skills and even needs to pay a class of doctrinaires who can interpret its dreams. Ruler’s dreams always revolve around ruling more, so the pre-modern intellectuals would spend their life thinking about how to enhance the clique’s power. This would have three elements – how to kill more efficiently, grab resources from those who produce it and still stay legitimate by chicanery. In modern language these are called the military, economic and political elements of power. By the 18th century the French decided that it would be best to hide the clique behind the vague notion of the state. For purposes of vindicating immigrants I shall focus on the economic element of power. Economics emerges as an element of power the moment a collective of people who have specialized, and thus lost their skills for subsistence-living, emerge in crowded lands called towns and cities. In this arrangement the three most important groups that vie for power are the consumers, traders and producers. In the medieval era, western Eurasian consumers in the form of the knights along with their townspeople acted as a powerful group based on the extorted farm produce of the peasants. That system collapsed to give way to 15th century trader ruled cities that could easily corrupt the knights and turn them into mercenaries. The Medici family makes for one fine example of trader-rulers. And this led to the modern era starting in the 18th century where producers in the form of industrialists and industrial labor ruled the day – as subsequently explained by Marx. The software of the Economy One of the greatest challenges of managing the interaction between consumers, traders and producers is keeping track of information. Africans were forced to invent quantification thousands of years ago for precisely this purpose. By the 15th century slick math whizzes from the Maghreb moved to Italy and started the education. Again the basics were simple and the cycles predictable. Assume that specialized town A produces an item of value 100 for the consumers of town B, and the specialized producers of town B produce an item of value 120 for the consumers of town A. The trader could simply exchange the items between the two, take a small commission and transfer value 20 from town A to town B because the value of town B produce is greater than the value of town A produce. To this day this is how trade is settled between towns, nations, corporations and individuals. Most traders could not be trusted to carry the value 20 between the towns for it quickly added up to millions and they could run off with it. Therefore the wealthiest traders of both towns would periodically calculate the entire ‘balance of trade’ with the other town, charge each person in their own town according to their consumption and production level, and hire mercenaries to transfer the value in gold to the town with a trade surplus. To do this they needed to keep detailed accounts of all trades being carried out between the towns. So it always helped if related families carried this burden in towns that had high volumes of trading with each other. These families were so busy keeping track of trade numbers that they got out of the business of trading and started thinking of ways of expanding the production, consumption and trade of their town. Within a few generations the town’s producers, consumers and traders forgot that they used to be free to negotiate the value of their own products and relinquished valuation powers to the wealthy families. These families now called themselves ‘banks’ and had enough legitimacy to write a number on a peace of paper and pronounce that it had that much value. Therefore the entire town could now take their gold out of their mattress and store it with the banks in exchange for such paper. Of course the banks claimed that the paper was backed by their wealth and town deposits. But no one in town knew quite how much of the paper was really backed by real wealth. Eventually the banks determined that an easy way to expand the volume of production, consumption and trade in town was to write many such papers even when there was not enough gold to back them. This worked as long as non-bankers did not know what was happening. The banks eventually found that one could write 10 values of paper for each 1 value of real gold in the vault without people rebelling. In the modern world, this is what is called ‘fractional reserve banking’. In this way, finance became the mirror image – and resource management software – of the real economy, balanced around the fulcrum of gold. Assuming that gold was always valued [and thus control of mines monopolized], as long as the value of the paper from the banks was stable relative to the value of the items being produced, consumed and traded the town had a stable price economy. If the banks printed too much paper, produce would cost more money [the value of money would fall] and if they printed too little paper, produce would cost less [and the value of money rise]. So how did the banks make their money? By simply writing more paper that they then lent out for a price – called interest. However, the educators from Maghreb left out one crucial piece of lesson in all this. What happens when this fragile balance between the value of paper and physical item is lost? Time to Reboot The royalty of Spain had consolidated many towns under their control and forced all their banks to start working together. The economy started expanding dramatically based on expansion of paper and credit from the banks – called monetary expansion in the modern world. But the banks hit a wall. They could no longer expand the amount of paper in the economy to keep up with the increasing amount of production, consumption and trade. There was simply not enough gold to back it. Therefore the paper was in short supply relative to real products, and it slowly took more real value of products to obtain one single value of paper. In other words prices were falling – deflation – and interest rates, the price of money, rising. The value of paper money was rising compared to real produce. Suddenly the banks found that they could accumulate significantly more wealth by such monetary shortages than by striving to find a balance [between the value of money and real items] and issuing credit. High interest rates slowed the expansion of the economy and thus adversely affected the population’s standard of living. Falling prices meant consumers waited to buy but inevitably lost their job eventually because other consumers also waited to by what they produced. The exporters were even less happy as populations who lived outside their currency found their products to be expensive because they were valued in money that was in short supply and thus expensive. This was in addition to the burdens of high interest payments to their own banks from all the borrowing of the expansion era. The resulting defaults brought more businesses under the control of banks. Just as the deflationary crisis came close to unraveling the empire, Pizarro used biological warfare to defeat Huanya Capac by infecting him with smallpox, and robbed the Inca Empire of its gold. This resolved the crisis by allowing the king to decree monetary expansion to continue and keep up with economic expansion. Economic cycles with such wealth accumulation mechanisms always end in monopolies and it was no different for the Spanish empire. The empire monopolized control over the supply of gold, erected barriers to imports to protect the local producers and forced exports on weaker neighbors. Being an empire heavily dominated by traders [bankers being a powerful subset of the trading class] it drew wealth out of consumers and producers by increasing the price for consumers and reducing the cost of production. Reducing the cost of production was achieved by using slave labor. Of course this was not new. Old trader controlled civilizations such as those of the Greeks and Romans were also based on slavery. This was in stark contrast to predominantly producer controlled ones such as the Egyptian civilization Software upgrade However the same problem of gold shortage was to revisit the west Eurasian civilization repeatedly. Monetary expansion, in order to keep up with real economic expansion, was desired by producers and consumers [and the political class that represented them]. Many bankers noticed that such expansions created new wealthy powers that contended for power while cheapening money – low interest rates – and fought against monetary expansion. This confrontation grew until Napoleon used his army to wipe out the trader dominated era and paved the way for a producer dominated one at the beginning of the 19th century. This pressure created one of the most enduring relationships between banking and state power, as central banks were established across west Eurasia legitimizing banking interests and securing them against powerful producers. These banks were given full rights – guaranteed by the states – to control the supply of gold and thus money. This is what made control of Southern African gold the linchpin of Anglo-American power, and the conquerors of the region – Rhodes and Rothschild – legends. As labor and industrialists fought within the producing class, Karl Marx warned the world that their synthesis was about to take over the levers of power. This was the essence of his dialectic materialism. He proposed a new framework for understanding the world and hinted at an ideology. The lesson that the Muslims had left out was now revealed. Fragile societies – those without the ability to survive in subsistence – require strong ideological indoctrination to get past periodic, disorienting, economic crises and financial meltdowns. Soon nationalism was there to take the lead. When that eventually ended after the second Eurasian war in 1945, most northern societies found themselves running on empty. Seeing the battles that are presently being waged, western Eurasia will probably revert back to being Muslim again. It appears that this was what the Scottish Sheik Abdalqadir alMurabit was planning when he established his sect. Finance had to be upgraded to deal with a dominant producer class. As happens in all such cycles, producers monopolized power and markets. The Carnegies of the world challenged all those who stood in their way and produced without bound. So much so that affording consumers were in short supply and economic crisis arose from glut. Violence, such as the Opium wars, was used to create consumers. Poor urban laborers died in misery while industrialists thrived. And from this mess arose an innovation. It occurred at the beginning of the 20th century when Vladimir Lenin discovered that a properly politicized industrial labor class could turn the software of economies – finance – from lord to slave by totally disengaging from a currency system based on hoarding gold. Bankers could be turned from rulers to bureaucrats. The Russian currency was to be backed by Russian producers’ belief in the power of their ideology and not in gold. This new reality challenged more than just bankers. It also challenged producers and consumers who stored their wealth in gold, by challenging the value of gold itself. Bankers and industrialists launched wars to stop the spread of the new idea. Many poorer nations found, for the first time in modernity, a way to expand their economies without paying heavy tribute for a share of the world’s supply of gold – known as foreign direct investment in more recent times. A costly error was committed by bankers and industrialists as they attempted to stop western Eurasia – and specially Germany – from going the Soviet way by arming unemployed gangsters to maim and kill labor organizers. But the pressure was far too strong for most nations and they ended up with a compromised solution. The inventor – Benito Mussolini – was an old socialist who had seen the right way after some meetings with bankers and industrialists. He attempted to arrange the Italian economy along the lines of the Soviet Union but give most of its accumulated wealth to the bankers and Industrialists. Thus he set off to Abyssinia to liberate the oppressed laborers of that nation and build wealth for his sponsors. Adolph Hitler was fast to catch on. Both were celebrated across the west as the geniuses who saved capitalism from ruin until they grew so powerful that they came after the wealth and power of the bankers and industrialists themselves. After the Soviet Union defeated Hitler’s Germany with US financial support, a new world emerged. The Soviets – directly or indirectly – controlled most of Eurasia except for the western and eastern industrialized edges, where US presence was desired to maintain balance. The two super powers divided the rest of the world between them and essentially ended the gold standard. The entire Soviet dominated world used communist ideology to back their currencies, and the US dominated areas used the US Dollar backed by corporatist ideology as envisioned by the fascists. The entire world was dominated by state capitalism. Most areas of the world were witnessing rapid economic expansion again and without the gold bullion, central banks – all controlled by state power by now – were free to expand monetary policy to support such economic expansion. This represented the peak of producer power as standard of living increased dramatically and poor countries followed Soviet or fascist models to launch their own economies. Disparities in wealth fell dramatically as income from growth was reinvested rather than hoarded in gold. At first a small clique of rulers controlled production, consumption and trade volumes in industrialized states and macro-economics was invented to manage aggregate demand. The problem of industrialized glut that had plagued the previous century was solved. Governments would buy the extras – typically arms and crops – and literally destroy them. As this expansion ended however, the Soviet Union fractured and fell apart while the US fell back under the control of a few bankers and industrialists who had snatched power back from the producer class. In the process they turned the old producer citizens of nations into compliant globalized consumers. They planned to re-establishing finance as the dominant power within the US and around the world. The world was not complaining and did not have a viable alternative. By the 20th century Western Eurasia and its satellites [Americas, Australia, etc…] had achieved incredible economic and military advancement but were still infantile in ideological and political terms. One simple example of this being that credible mutual annihilation remains the only viable political solution to maintaining stability; where historically innovative religious and political systems had achieved the same at much lower cost. Finance dominated capitalism was acceptable as long as it prevented nihilist wars. Software for the world The new bankers and industrialists made a series of efforts that culminated in the transformation of the US currency to de-facto reserve currency for the entire world by the end of the 1970s. They essentially made a deal with a few Islamists who controlled the most important commodity in modernity. This resulted in crude-oil being traded in dollars alone, in exchange for legitimizing the sheiks. Thereafter they set off on a campaign of centralizing control over the central banking of each nation and essentially removing the influence of state power from banking. This process was later coined the ‘Washington Consensus’. One advantage for the US was that Americans could now benefit from their bankers ability to expand the supply of the dollar without its value falling because the currency was in growing demand. In other words, a thirty year era started where the growing production, trade and consumption in east Eurasia was denominated in dollars. East Eurasians needed dollars to trade and buy their most significant import – oil. At the same time American bankers and industrialists were able to take the new printed money and buy valuable east Eurasian assets with it. They essentially set about monetizing [in dollars] all of the world’s valuable assets, from land to poor people’s debts. Further down the economic ladder Americans benefited by consuming and investing based on cheap credit without having to produce valuable products and services. Finance soon expanded to take over the US economy, employing only 10% of the labor force, but accounting for 50% of profits by the beginning of the 21st century. Progressive taxation was reversed and wealth disparity exploded. As the debt levels on Americans accumulated, the expected rebellion never came. American labor was at ones undermined and freed from hard labor by the presence of women and immigrants on the scene [for political reasons slave descendants continued to be kept out of the labor force]. These low cost labor alternatives helped break the last political hold of organized labor. But Americans no longer had to clean toilets nor pack smelly meat. They figured that they could now teach each other extinct languages, sailing, cooking and massaging while feeling productive. Immigrants had actually saved the day. The organized labor groups at the tips of Eurasia reacted differently. They rebelled by harassing immigrants and in some cases slowing the pace of women joining the labor force as in Germany. But they face the same fate of a contracting ‘producing economy’ and are only lengthening the process. They are however keeping a lid on wealth disparity through progressive taxation in order to dissipate political upheaval. By the first decade of the 21st century the entire world fell under the domination of one currency and the few bankers and industrialists who controlled its printing. A full monetary monopoly has been achieved. But soon enough this monopoly is exhibiting cracks just as all the previous monopolies had cracked before it. The consumer monopoly of the city states in the 15th century had fallen to be replaced by the trader monopoly of imperial states by the 18th century. And now the producer monopolies of state capitalism are possibly seeing their end as the US dollar is challenged by new comers. Many revolutionary oil producers have launched assaults on this currency monopoly over the past few decades resulting in multiple wars. Libya and Iraq received punishing military assaults while Iran is being threatened with nuclear assault and Venezuela with a coup. Upgrading hardware The greatest threats to the dollar however are not small oil producers or even large east Eurasian powers. The threats are those central bankers in Washington who may force the dollar to fall in value by overprinting it. Since the 1980s, a properly controlled over-printing was made to inflate assets in the financial industry alone. The planners correctly deduced that if most of the printed money remained within the financial system and was not released to the real economy, wages would remain low and so would the price of consumed products. In essence the real economy would operate as a low price zone and the financial economy would operate in an insulated high price zone. Those who owned financial assets – stocks and other financial instruments – would take the largest share of the printed money. However this would not result in general loss of value for the dollar – general inflation – because people in the real economy would not have access to money. With this arrangement Michael Lewis of the book ‘Liar’s Poker’ tells us that a young man with no specialized knowledge, straight out of general college working in finance, is compensated more than a surgeon who is responsible for a heart transplant, or the engineer who takes responsibility for the lives of 100,000 people occupying a building. But there was a slip; unexpectedly, fast economic growth in east Eurasia started putting pressure on the price of real economic components such as products and wages. In 2008 the price of commodities – such as oil and other raw materials – climbed by over 100% in months. The entire edifice of currency monopoly was about to fall apart. The old solution to such an inflationary disaster was to stop printing and thus raise interest rates, starving the real economy of money. However all those in power, and particularly the head central banker, know too well what happened the last time that was attempted by bankers in New York and London. It set the stage for Hitler’s rise by invoking a general rebellion against banking interests. But this time the landscape appeared safer since there were no longer powerful industrial interest groups to contend with. In September of 2008, all the bankers had facing them domestically was the compliant American consumer. The spiraling problem could only be stopped by stopping Americans from consuming by cutting of their cheap credit. This would in turn stop the east Eurasian producers from cranking out consumables, and finally the commodity producers would have to sell their oil and iron ore for less. Yes one had to kill the economy to save its mirror image – the currency. Just as in every other time of financial crisis, the era of price stability is over and we live on the brink of inflation or deflation every day. But how can one kill the economy but save its mirror image? How can financial software survive without an economy on which it is based? The recent collapse in value of financial assets illustrates that it can not. But the simple answer being heard across the world is that the present financial software can be run based on the economy of future generations. Thus bankers have convinced every major government to borrow trillions of dollars and buy up all the financial assets that have lost value and breathe life into them again. Well yes, they agree that assets in the real economy, such as home values, may get a few billion dollars of bail-out if they really fight for it politically, but the focus should be on financial assets. The argument goes that the next generation will pay back the huge national debts thus accumulated because a totally new reality and economy is on the horizon. This is an economy where Africans can buy their food selling carbon credits to polluting east Eurasians. And east Eurasians will produce consumables in exchange for electronic games that are invented by American and west Eurasian youngsters. Finance will manage this and be the last arbiter of power since all will be deeply indebted to it. In fact such a ruling class does exist and is called the ‘investor class’ on Bloomberg. This investor-centric approach to solving problems explains why two nations that are drowning in debt, consume beyond their ability to pay for it and have populations who are in dire need of a solution would be given diametrically opposite advices by the same economists in Washington DC. Last month, these economists advised the US authorities to expand monetary policy and thus support the collapsing financial assets while paying off some of the more volatile real economic players. The same economists went to Ethiopia in January and advised it to contract monetary policy, cut public programs and eliminate fuel subsidies in order to preserve the value of its currency. Back to Immigrants and Islamists So immigrants really had nothing to do with the present economic crisis nor the fall in house prices and other commodity prices. There was a financial collapse that economists had seen coming. And because the global ‘real economy’ is dominated by finance, this turned into a real economic collapse. Without a real intermediary fulcrum valued by all – such as gold or ideology used to be – there is no implicit balance setter between the real economy and its mirror image money; even as Ron Paul fights to change this by reintroducing the outdated idea of the gold. The Islamists had left out the most important lesson in economics and finance. They neglected to mention to the embryonic civilization that wealth distribution in society can not be based on simplistic economic and financial models that break down every 30 years. Thus west Eurasian civilization developed into a large crooked tree with a great deal of economic growth and capacity for violence, but dangerously little in cultural and political development. In their time the Islamists knew and documented that the relationship between producers, consumers and traders needs an underlying stable belief system. One that teaches morals and value based on community building and a sense of freedom. Without it a quest for more power by a clique would translate into mass murder, dehumanizing of labor, promotion of obsessive competition and a general divorce with human instincts of survival. None of what is happening today is really new and we should have always known to go back to the first teachers when apportioning blame. That one needs so many pages to explain where the blame really lies means that immigrants are bound to remain in the history books as the group who destroyed the American, and thus global, economy through their greed and stupidity. The history books will show that, well yes, the banks were also responsible but only because they were misled by these immigrants about their real income and future. But immigrants do not have to believe this story for there is another, more credible history, to explain it all.