Who or What is Financing the States?
By Hwaa Irfan
As a complete novice, this is the main question that comes to mind when one reads of how this is the first time ever that the 27 states that constitute the geographical anomaly the U.S. have no income of their own, and have become totally reliant on federal state funding? This does not constitute the image that the U.S. projects as it goes off gun-ho spending $550mn on bombing Libya with an expected $40mn over the coming weeks as the U.S. run NATO takes over the ill-named Odyssey Dawn. One may tire of hearing such rantings, but really in the midst of The Great Recession, when the unemployment statistics are worse than being declared, poverty is further being entrenched, and massive redundancies are ear-marked, how is it that a government is ready and able to dash across the seas to another terrain in the name of humanity when everyone knows it is not, and yet there is no income from its provinces, and their population are in need.
Long before the Great Recession, in 2005, Senator Kent Conrad was reported to have said:
“Well, increasingly we are going into debt with other countries around the world. We owe Japan over $680 billion. We owe China over $240 billion. We owe the United Kingdom over $140 billion. My favourite is the Caribbean banking centres.”
Usually when one is in debt it means that one has no money to pay what is outstanding, but the U.S. continues to be in debt, and continues to spend millions backing unsavoury regimes in the name of American interests. The only way American interests on foreign shores seem to pay off is due to extreme effort in maintaining (with difficulty) its neocolonialistic presence in the world, and those who profit from it! Otherwise it seems quite apparent to a simpleton not entrained to blind that the U.S. is bankrupt. One is almost sure that any investor would not continue to invest in something that was a sinkhole, but somehow, somewhere they do, and they do so even when the dollar is depreciating, devaluing any financial benefit on the part of the investor – so there must be some benefit not apparent to the U.S. citizen or benefiting the U.S. citizen except the chosen few.
In a list of countries that are major foreign holders of U.S. treasury securities, one stands out being not listed as a country i.e. the Caribbean banking centers. From January 2010 – January 2011, the Caribbean banking centers apparently have been holders of U.S. treasury securities to the following sums in billions of dollars:
“Caribbean offshore banking sector offers financial services which a subject to minimal controls and provides bank secrecy.” – Offshore Banking Today tells us.
In other words the Caribbean functions like the tax havens of Switzerland, while impoverishing the Caribbean without being monitored. It may be the key reason behind the secrecy of U.S. interest in keeping the Caribbean under its gum boots. An economist with 44 years experience with offshore and tax havens, Michael Hudson, in an interview long before the Great Depression began in December 2007 highlighted the following with Counterpunch:
Banking centres or “SHIPS” was an innovation of the American oil industry to escape paying income tax over 100 years ago!
The U.S. government in the 1960s “…encouraged American banks to set up branches in Caribbean hot-money centers and more distant islands as a means of attracting foreign money into the dollar. The initial aim was to help finance the Vietnam War by turning America into a new Switzerland for the world’s hot money.”
The system that runs these banking centres helps multinational corporations to avoid paying taxes, and kleptocrats.
This system also helps “…U.S. and European investors to shed taxes simply by hiring a lawyer to set up a boiler-place office and finding an accounting firm willing to take its records at face value–which is good enough for the tax authorities to accept in these days of downsized fiscal operations.”
“The resulting plunge in the ratio of corporate tax obligations to national income has been a major factor in America’s soaring federal budget deficit.”
“Businesses–and especially the financial sector–establish dummy companies and adjust their transfer pricing (e.g. on sales of raw materials to refineries, and of refined or semi-manufactured products to their final distributors in the industrial nations) so as to take all their profits in these tax-free enclaves.”
“Un-taxing business income–and financial income in particular–leaves individual taxpayers to bear the fiscal burden through wage withholding for Social Security, Medicare and pension-fund contributions. Consumers also bear a rising burden through the sales tax and other local taxes.”
“The reality is that U.S. companies make a lot more money than they report. However, offshore banking centers free them from having to pay taxes on this income, or on capital gains. That’s why we’re running such high budget deficits today.”
“The essence of this game is that Esso and other oil majors were able to “game” the world’s tax systems by selling their crude oil at so low a price to their tanker companies as to leave little income for Saudi Arabia, Venezuela or other oil producing countries. This discouraged them from taking control of their mineral wealth, especially as they had no tanker fleets to move this oil. The corporate shipping affiliates turned around and sold their oil to their downstream refineries. These generally were located safely offshore in different political jurisdictions (e.g., Trinidad for Venezuelan oil). The oil was transferred at so high a price that despite the heavy capital investment in these facilities, the refiners and distributors reported losses year after year, decade after decade.”
“The I.R.S. already had permitted tax avoidance to occur under pressure from the large multinationals such as the oil and mining companies. Vertical integration enabled them to administer transfer pricing in a way that minimized their global tax liability. Refraining from taxing the interest paid on U.S. Treasury bonds favoured U.S. hot money.”
When asked about the European and U.S. authorities responsible for taxation, Hudson replied:
That’s where the political lobbying power of major vested interests came into play. Their ability to avoid having to declare earnings on which taxes would be due reflected the passivity of tax collectors in Europe and North America where most downstream facilities were located. One might think that such governments would have imputed a minimum tax, on the principle that any investment must expect to earn at least a normal rate of return; otherwise it would not be made or kept in place. Turning a blind eye to this logic, governments accepted the profit-and-loss statements as company accountants submitted them. They permitted the profits from oil drilling, refining and marketing to disappear down the statistical black hole of international shipping.”
“Parent companies consolidated their oil fields in the Near East, Africa and South America into their domestic U.S. balance sheets by organizing them not as corporately distinct foreign affiliates but as “branches.” This technicality allowed them to take the full U.S. depletion tax credit against their income. Depleting the resources of other countries was treated as if they were part of the American economy–except that the profits were taken in Liberia and Panama.”
The interview reveals much more, and one should take the time to read it, for it explains many things about the realities of the Great Recession which we are experiencing, and who is really paying the price, and why the current solutions are only about maintaining the status quo, and why more and more people are working harder each day to find the rising cost of food is all that one can pay for. When Obama responded to demonstrations for jobs in the last mid-term elections, he responded by going out like a door-to-door salesman, selling arms to raise the dough after officially withdrawing from Iraq. Either he was a novice who had to learn quick to stay in the game, but after selling those arms, U.S. citizens are none the better, and other countries are none the wiser for virtually inviting the U.S., NATO, and the international elite to prepare for the next stage of neo-colonialism to feed the few, and starve the many. WWI and WWII was all about oil, and war-profiteers who now look for their next war!
There is an African proverb that goes one can lie 99 times but the hundredth? Wars, insurgencies, and coups may only belong to developing countries, but that is for a reason, the trouble is though one may live in the West, those of the West have also been pawns in that same game!
Clark, M. “Offshore Banking Caribbean, Caribbean Banking Centers.”
Hodgson, F. “A First in American History: 2011 Federal Aid Set to Overwhelm State General Funds.” http://www.thepelicanpost.org/2011/03/29/a-first-in-american-history-2011-federal-aid-set-to-overwhelm-state-general-funds/
Hudson, M. “An Insider Spills the Beans on Offshore Banking Centres.” http://michael-hudson.com/2004/02/an-insider-spills-the-beans-on-offshore-banking-centers/
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