Big Bang, Big Bucks

We have previously noted that money has a political, as well as economic, significance. In a letter to "Colonel" House, Franklin Roosevelt acknowledged that certain financial powers have owned the United States government since the days of Andrew Jackson. This link between money and politics is nicely illustrated by the explosions which have recently taken place in India and Pakistan.

Our President has expressed dismay and regret at India's recent detonation of an atomic device. It creates, to use his term, "instability" in the region.To use my term, baloney.

Instability? India set off its first atomic explosion in 1974. Now, almost a quarter of a century later, another such detonation creates instability? It was a cause of great concern that Pakistan, which has had a nuclear development program for many years, might set off its own atomic devices, which it has done. Doesn't that re-stabilize the destabilized region? Phooey.

Pakistan has been denied financial aid for many years as a result of its nuclear development program. As a result of its latest atomic test, however, India must, by U.S. law, be denied further aid from this country, as well as loans from multilateral institutions, such as the World Bank, which has India as its biggest borrower: forty-four billion dollars. India was scheduled to get thirty billion from that institution before the end of June. In addition, over $140 million in American aid for this year has been put on hold. India owes the U.S. government fourteen billion in loans and guarantees, and has outstanding loans with U.S. banks of two billion dollars. And Madeleine Albright has forbidden the Import-Export Bank from making any loans to India until further notice. (Where does she get that authority?)

Japan, India's largest donor, is considering holding up its largesse. It gave India nearly one billion dollars last year. Germany is canceling $170 million in aid.

The President's anguish at India's actions, I suggest, has less to do with atomic weaponry than with India's ability--or inability--to repay its loans. The sanctions are automatic; the President cannot ignore them. But while they are in place, India's solvency wobbles dangerously. Remember, the assets of banks are the IOUs of its debtors. As long as those IOUs are OK, the banks are OK. That is why, when a country such as India is unable to pay its debts, the banks lend it still more money via their fronts: the World Bank, or Import-Export Bank.

If that is prevented, as it currently is with regard to India, the IOUs of that country become decidedly less desirable as assets. Should those assets become perceived as worthless, or nearly so, the loans which are supported by those "assets" will be called. If the borrowers are unable to pay, their IOUs likewise become worthless--etc. You get the picture: a vicious downward spiral. It is unthinkable that this be allowed to happen.

Governments are supported by fiat. Taxation, as a means of government support, has been obsolete for decades; but is maintained as a means of fine-tuning the economy, and getting the money away from spenders before it hits the marketplace. If the banks supplying this fiat go under, so does the government, and the myriad programs supported by the funny money. Hence the President's description of India's action as a "terrible mistake." I'll say!

As the President's supporters insisted, during his campaign, "It's the economy, stupid!" Or perhaps it's the stupid economy. But for sure, it isn't another atomic bomb explosion in India after twenty-four years that has the insiders worried.