neoliberalism

Epiconomics 101: Our Fiscal Genome

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Published on Peak Surfer on May 8, 2016

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"Vital public services like health care, education, transportation and communication should be free."

 

In the May 2d New Yorker, Siddhartha Mukherjee wrote an ode to his mother and aunt, identical twins, taking the opportunity to dig into the roles of nature and nurture in shaping our lives, Going a step farther, he brought in one of our favorite topics here, epigenetics, or the ability of the same DNA strand to issue different instructions depending on external stimuli.

Last year, in our discussion of quantum entanglement, we observed how little of what we call our own bodies is actually our own DNA. More than 95 percent belongs to our unique, personal, coevolving microbiome that not only helps us breathe, digest, and heal illness, but influences our patterns of thought and intentions.

Mukherjee chronicled the gross result of this conspiracy, describing how two brothers, separated by geographic and economic continents, might be brought to tears by the same Chopin nocturne, as if responding to some subtle, common chord struck by their genomes, or perhaps by their epigenomes, and how two sisters — separated long before the development of language — had invented the same word to describe the way they scrunched up their noses: “squidging.”

Mukherjee overlooked the closely entangled microbial web of alien presences, but we’d observe that although these twins may have placed distance and culture between themselves, they had been together long enough to have nearly identical microbiomes from gestation, birth and infancy.

Nucleosome crystal structure at 2.8 angstrom resolution showing a disk-like shape. DNA helices at edge, histones and free proteins in center. The worm-like structures are RNA messengers. reasonandscience.heavenforum.org

Mukherjee writes:

It is a testament to the unsettling beauty of the genome that it can make the real world stick. Hindu philosophers have long described the experience of “being” as a web—jaal. Genes form the threads of the web; the detritus that adheres to it transforms every web into a singular being. An organism’s individuality, then, is suspended between genome and epigenome. We call the miracle of this suspension “fate.” We call our responses to it “choice.” We call one such unique variant of one such organism a “self.”

In his visits with various scientists Mukherjee probed the complex connections of the histones that occupy the empty spaces within the double helix and seem to possess a mysterious power to trigger or silence gene expressions. What he seems to overlook is the role of non-human microbiological agents in making these sorts of choices for their hosts. Indeed, his description of a histone begs comparison to other life forms:

In 1996, Allis and his research group deepened this theory with a seminal discovery. “We became interested in the process of histone modification,” he said. “What is the signal that changes the structure of the histone so that DNA can be packed into such radically different states? We finally found a protein that makes a specific chemical change in the histone, possibly forcing the DNA coil to open. And when we studied the properties of this protein it became quite clear that it was also changing the activity of genes.” The coils of DNA seemed to open and close in response to histone modifications—inhaling, exhaling, inhaling, like life.

***

These protein systems, overlaying information on the genome, interacted with one another, reinforcing or attenuating their signals. Together, they generated the bewildering intricacy necessary for a cell to build a constellation of other cells out of the same genes, and for the cells to add “memories” to their genomes and transmit these memories to their progeny.

While we were pondering these things, bicycling through a Spring rainstorm one morning, we tuned our mobile cyberamphibian prosthesis to Michael Hudson’s interview on Extraenvironmentalist #91. Hudson described how debt deflation is imposing austerity on the U.S. and European economies, siphoning wealth and income to the financial center while impoverishing the periphery. Its the theme of his latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Crossing two hot wires in our rain soaked brain, the comparison between economic theory and genetics wafted a blue smoke that trailed out from under our bike helmet.

The system itself — the DNA code — is monetary policy, trade rules, labor, capital assets and other components of what we call “the economy.” The histones are the central banks and the FED that set the policies epigenetically by turning switches on or off. The wild cards are those alien protein agents that seem to bring about changes in the histones. A century ago those might have included J. D. Rockefeller and J. P. Morgan. Then came Henry Wallace and Franklin D. Roosevelt. Today they would include Jaime Dimon (Morgan Chase), Lloyd Blankfein (Goldman Sachs), Christine Lagarde (IMF), and Prince Mohammed bin Salman bin Abdulaziz Al-Saud.

It is pretty clear from most indicators that since at least 2008, and likely much earlier, our economic DNA has been instructed to express a cancer. As Gail Tyerberg observes:

Both energy and debt have characteristics that are close to “magic” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products.

Back in the era of cheap energy less debt was required. In our era of expensive energy, gigantic and growing debt is required. But you can only build debt on itself up to the point where confidence in repayment by those who are owed the money falters. After that, watch out. No debt, no energy. No energy, no economy.

Greg Mannarino of Traders Choice says:

Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise. … Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary. … We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

… Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted. … The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.”

It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible. So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty. Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if… … When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves. There’s no way out of it.”

Jason Heppenstall, who lives in Cornwall, England, writes in the 22billionenergyslaves blog:

Aside from the police and the shops closing, public toilets are closed virtually all of the time, and the Post Office too is soon to close down, having been privatised and now asset stripped. The council is being forced to raise its taxation rates by 4% this year to cover the shortfall caused by spiraling costs and diminished funding from central government. Clinics and charities are being squeezed out of existence and the local council tried (and failed) to privatise the town’s midsummer festival.

My wife works in the care sector. The stories I get to hear will make you never want to be dependent on the state in your old age. If you can’t rely on your kids to look after you in your dotage it might be wise to keep a bottle of whisky and a revolver in your bottom drawer. Or maybe you'd rather die of thirst lying in your own mess because the 19-year-old unqualified carer who works for minimum wage is too busy checking Facebook on her phone to hear you pressing the emergency button by the bed.

Former US Budget Czar David Stockman wrote this week:

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude.

***

In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.
 

This is not Al Gore. It is Elon Musk, a beneficiary of govt largess

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same.

In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy.

What the Fed was actually doing was falsifying and inflating the price of financial assets. As Michael Hudson points out, the prime error is placing the financial sector in the same column as honest labor or capital contributions. Finance is actually a drain on those things. It is a withdrawal from productivity, not a contributor to GDP.

Stockman agrees:

But financial engineering does not add to GDP or increase primary spending; it results in the re-pricing of existing financial assets. That is, it gooses stock prices higher, makes executive stock options more valuable and confers endless windfalls on the fast money speculators who work the financial casinos.

Last month, Mario Draghi, the European Central Bank president, became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents.
 

Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councils and again at this month’s IMF meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader. More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

The Automatic Earth

With England jumping ship and Germany saying nicht to every reform proposal, the EU is headed for a disaster but Italy seems to be able to still think outside the box. To us this suggests the potential for alien-led histone modification in the DNA of modern finance.

Heppenstall says:

The irony of being called anti-European is that I am ardently pro-European. I’ve lived in four different EU countries, travelled all over and am married to an Italian Dane. Europe, to me, is the most diverse place in the world and has an amazing spread of history and culture. My ideal life would involve spending several months each year travelling around Europe in a camper van and getting to know it in an even more intimate manner. The EU is not Europe; it’s an abstract concept masking a faceless undemocratic organisation that funnels wealth from one place to another and keeps its modesty intact behind a fig leaf of supposed liberalism.

It doesn’t have to be that way. We could still have a Europe united around some core values other than money and power and capitalism. How about a Europe focused on an emerging eco-consciousness? Or what about remaking it as a loose cooperative of bioregions? Or perhaps, at the very least, we could all agree on a shared constitution founded on liberty, equality and fraternity. Former Greek finance minister Yanis Varoufakis has suggested something along those lines, setting up a pan-European umbrella group called DiEM25 that aims to shake things up ‘gently, compassionately but firmly.’ Perhaps there could be more debate about what kind of Europe would be better suited to weathering the coming financial, ecological and energy shocks without causing so much collateral damage to both itself and other nations.

Until that happens we’ll just have to stand back and watch the fireworks. Big institutions like the EU are like skyscrapers; they don’t come crashing down to the ground without taking out plenty of other nearby buildings and the EU is like the leaning tower of Pisa on steroids.  Big things are an artifact of the age of oil – the future is necessarily smaller and more local. The best course of action is to stop arguing over whether it is best to be stood on top of the creaking tower it or beside it, and simply get the hell out of the way before it goes over. 

Draghi’s Italy, it should be recalled, was the country whose Supreme Court last month ruled that Roman Ostriakov, a young homeless man who had bought a bag of breadsticks from a supermarket but had slipped a wurstel – a small sausage – and cheese into his pocket, had acted out of an immediate need by stealing a minimal amount of food, and therefore had not committed a crime. Carlo Rienzi, president of Codacons, an environmental and consumer rights group, told Il Mesaggero, “In recent years the economic crisis has increased dramatically the number of citizens, especially the elderly, forced to steal in supermarkets to be able to make ends meet.” La Stampa said that, for supreme court judges, the right to survive still trumped property rights, a fact that would be considered “blasphemy in America.”

Michael Hudson

Hudson is another epigenetic secret agent. He advocates a debt jubilee similar to what Truman pushed on Europe after World War II, creating the “German Economic Miracle.” In Hudson’s view, the quickest route to reform would be shifting from taxing honest labor to taxing unearned income and capital gains; from burdening the shrinking middle class to shrinking the rentier class. Vital public services like health care, education, transportation and communication should be free.

Ellen Brown, who has been beating the drum for public banks from her Web of Debt page and books, notes that the Bank of North Dakota, the nation’s only state-owned depository bank, was more profitable last year than J.P. Morgan Chase and Goldman Sachs, and that was after the fracked gas bubble burst. She urges local governments everywhere to bypass the Fed and the vulture banking system and create their own public banks.

Ellen Brown

North Dakota has led the way in demonstrating how a state can jump-start a flagging economy by keeping its revenues in its own state-owned bank, using them to generate credit for the state and its citizens, bypassing the tourniquet on the free flow of credit imposed by private out-of-state banks. California and other states could do the same. They could create jobs, restore home ownership, rebuild infrastructure and generally stimulate their economies, while generating hefty dividends for the state, without increasing debt levels or risking public funds – and without costing taxpayers a dime.

The ability of these foreign antagonists to infect the global economy with a new narrative is a relatively recent phenomenon. The false narrative embedded by Bretton Woods and the Chicago School are not that thoroughly ensconced that they can’t be evicted. There is no reason why the inane policies of economic astrologers could not be quickly reversed by protein protagonists with simple but compelling histological reforms, such as basing the future on a bioeconomy that sequesters carbon and runs on sunlight.

Next week: Epiconomics 102: The Sunlight Economy 

Hillarism

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Published on Peak Surfer on April 24, 2016

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"The Irish Water crisis, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, offshore tax-avoidance havens, the collapse of ecosystems, Occupy Hong Kong, Australian greedy banks, and the rise of Donald Trump link to a single bad gene in our political DNA."

 


It is the political silly season, although these days it never seems to be otherwise. Delma Rouseff, Brazil’s heroic anti-establishment, anti-corruption President, has been impeached by the lower house on (dubious) charges of corruption, but the former, Brazilian President Luiz Inácio Lula da Silva called it more accurately a "coup d’état.”

Iceland’s Prime Minister Sigmundur David Gunnlaugsson resigned after it was revealed he owned an offshore company with his wife to channel millions of kroner. British Prime Minister David Cameron admitted he owned shares in a Bahamas-based trust up until 2010. In Malta, protesters demanded the resignation of Prime Minister Joseph Muscat for the same tax-avoidance activities.

Scores of countries will hold national elections in 2016. In January, Portugal elected Marcelo Rebelo de Sousa, former leader of the Social Democratic Party and supported by the Social Democratic Party and the CDS – People's Party. Portugal, which rationalized recreational drug policy in 2001, tilted left.

Ireland, which has a gender neutral election law, requiring any election to be supported by at least 30% male and 30% female voters, in February elected a right-leaning Dáil Éireann (parliament). Sadly the coalition is still too fractious to choose a Taoiseach (prime minister)

In 2013 Ireland consolidated separate county and local water authorities into a single national utility, which proceeded to install meters everywhere and raise rates. In 2014 and 2015 local protests blocked meter installers. Four percent of Ireland's population showed up at one demonstration in Dublin. Irish Water is a wedge between Fianna Fáil and Fine Gael, so no prime minister for Ireland.

Legislative elections for 450 Duma seats will be held in Russia on 18 September. Polls April 10th give Dmitry Medvedev’s conservative United Russia 46%, Vladimir Zhirinovsky’s right-wing anti-communist Liberal Democratic Party 11%, Gennady Zyuganov’s left-wing Communist Party 9%, A Just Russia People's Freedom Party 5% and the remainder to 10 other parties, including the Greens led by Oleg Mitvol.

In Peru, the first round on April 10th narrowed the field to Keiko Fujimori, daughter of former President Alberto Fujimori, of the Popular Force party, and Pedro Pablo Kuczynski candidate of the Peruvians for Change party. Fujimori has a healthy lead and the second round of voting comes June 5th. Peru is interesting if for no other reason than the names of its political parties (as translated): 

Popular Force
Peruvians for Change
Broad Front
Alliance for Progress
Popular Alliance
Popular Action
Direct Democracy
Possible Peru
Hope Front
Order Party
Developing Peru
Everybody for Peru

These names seem like something you might read on post-its on the wall of the “creatives” room in an ad agency.

In Australia, Prime Minister Malcolm Turnbull said last November: "I would say around September–October is when you should expect the next election to be.” However, when parties predictably deadlocked over bills to reinstate the Australian Building and Construction Commission, a bone of contention for the opposition Labor Party, Turnbull this week announced he would dissolve Parliament on May 3 and call for new elections July 2. Turnbull himself is well known to Australians and his party the clear frontrunner. But lately he has been losing ground to Labor leader Bill Shorten in the polls. Labor needs to win 21 seats to take power, a swing of 4.3%. BBC reports:

“Mr Turnbull will attempt to paint Mr Shorten as a union lackey who cannot manage the economy; Mr Shorten will say Mr Turnbull is an out-of-touch protector of greedy banks leading a divided party that stands for nothing.”

The Philippines just concluded its presidential debate cycle and is headed to national elections May 9th. At the top of the ballot is the election for successor to Philippine President Benigno Aquino III. The leading candidate is the current VP Jejomar Binay. His opponents include Senator Miriam Defensor Santiago (People's Reform Party) who is suffering from stage 4 lung cancer. Called "the Iron Lady of Asia,” she was the widely expected winner of the 1992 Philippine Presidential Elections, but lost after an inexplicably unscheduled power outage during the counting of votes. The Supreme Court of the Philippines recently declared optical scanner counting devices “corrupt” and forced precincts to return to hand counts.

Santiago announced her candidacy for president in the launch of her book, Stupid is Forever, on October 13, 2015.

Other candidates include Rodrigo “Courage and Compassion” Duterte (PDP–Laban), Grace "Government with a Heart” Poe (Independent) and Mar "Continue the Straight Path” Roxas (Liberal).

While the People’s Republic of China will not be holding national elections this year, what is brewing at the grass roots in Hong Kong is QI — quite interesting.  Wikipedia reports:

The emergence of new political groups led by young activists is set to shake up the political landscape of Hong Kong. Hong Kong Indigenous, a pro-independence localist group, faired well in the February New Territories East by-election by receiving more than 66,000 votes, coming third after pan-democratic Civic Party and pro-Beijing DAB, gaining about 15 percent of the total votes. A day after the election, localist groups including Wong Yuk-man's Proletariat Political Institute, Wong Yeung-tat's Civic Passion and Chin Wan's Hong Kong Resurgence Order announced a plan to field candidates in all five geographical constituencies.

On 10 April 2016. six post-Occupy organisations, Youngspiration, East Kowloon Community, Tin Shui Wai New Force, Cheung Sha Wan Community Establishment Power, Tsz Wan Shan Constructive Power and Tuen Mun Community, political groups formed after the Umbrella Revolution, formed an electoral alliance planned to field candidates in four of the five geographical constituencies with the agenda to put forward a referendum on Hong Kong's self-determination. Hong Kong Indigenous and another new pro-independence Hong Kong National Party also stated that they will run in the upcoming election.

On the same day on 10 April 2016, the student leaders in the Umbrella Revolution, Joshua Wong, Oscar Lai and Agnes Chow of Scholarism and Nathan Law of the Hong Kong Federation of Students (HKFS) also formed a new party Demosisto which was inspired by Taiwan's New Power Party which was formed by the Sunflower Movement leaders and fared well in the 2016 Taiwanese legislative election. The new party calls for referendum on Hong Kong's future after 2047 when the One Country, Two Systems is supposed to expire. The party aimed at fielding candidates in Hong Kong Island and Kowloon East, facing competitions from other new political groups while posing challenge to the traditional pan-democracy camp.

Finally, turning to the USA: With Bernie Sanders’ inability to unset the Hillary Clinton base in New York (Manhattan 66% – 33%; Westchester County 67% – 32%) on Tuesday, it looks more and more like a Clinton victory at the convention is a lead pipe cinch. Who knows? She might even have the team to out-Diebold the Trump machine. In Brooklyn, tens of thousands of voters discovered too late that they were ineligible to vote. The New York City Elections Board confirmed that more than 125,000 Brooklyn voters had been scrubbed from the voter rolls and the NY Attorney General's office is on the case. Clinton can now win less than half of the remaining primaries and still gain the required number of delegates.

Can she throw some kind of a aikido move on the Trump steamroller? We don’t yet know who controls the machines, but it is a pretty good bet it ain’t the Donald.

This past week George Monbiot penned one of the best essays of his career, although it was actually a teaser for his new book, How Did We Get into This Mess? published by Verso for £12.99.

In naming Neoliberalism as the root of all our problems, Monbiot linked the Irish Water crisis, the slow collapse of public health and education, rigged Philippine elections, resurgent child poverty, the epidemic of loneliness, offshore tax-avoidance havens, the collapse of ecosystems, Occupy Hong Kong, Australian greedy banks, and the rise of Donald Trump to a single bad gene in our political DNA.

Monbiot writes:

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

When George W. Bush attributed the rise of Islamic jihadis to “they hate our freedom,” what he was doing was reinforcing the neoliberal meme. As Monbiot puts it:

Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.

Hillary Clinton likes to tell audiences that because of the Affordable Care Act, "We now have driven costs down to the lowest they've been in 50 years.” Actually, health spending in the United States is higher than it's ever been, so the statement on its face is inaccurate. The U.S. spends more per capita than every other country in the OECD; and twice as much per capita as the system in France, with considerably worse average outcomes.

Monbiot writes:

The privatisation or marketisation of public services such as energy, water, trains, health, education, roads and prisons has enabled corporations to set up tollbooths in front of essential assets and charge rent, either to citizens or to government, for their use. Rent is another term for unearned income.

Unearned income is what buys elections, and not just in the United States.

What the history of both Keynesianism and neoliberalism show is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. And that is what none of the elections in 2016 seem to be doing.

Stranded Expectations

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Published on Peak Surfer on July 19, 2015

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 One of the birthplaces of civilization is having its cradle rocked again. Apart from the subjugation of women, children and slaves, Greece's beta version, going back 2500 years, was pretty cool – men in togas strolling though olive groves asking existential questions about life, the universe and all that. An updated version, without the wars, slaves and chauvinism, might not be half bad.

Today Greece is the European Union's current favorite whipping boy – the example to be made in order to keep all the other Ponzi'd patsies in line. It is no small irony that despite street protest bringing a new, defiant Syriza  (“from the roots”) government to Athens and a resounding No! Icelandic-style referendum placing Greece in technical default, the realities of needing a cash drip to keep pensioners breathing and buses running have given the upper hand to German, French and British banksters. 

The irony is compounded when one glances at the score sheet for total debt to GDP, with China at 250%, Germany 302%, Greece 353%, USA 370%, Britain 546%, Japan 646% and Ireland at an enchanted 1,000%.

Commented Dmitry Orlov:

The IMF won't lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one.


After the US-controlled International Monetary Fund acknowledged that Greece has no possibility of ever repaying its debts, the central bankers’ bank, the Bank of International Settlements, recently issued a very blunt warning

“[T]he world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crisis."


If neoliberalism has a Hall of Fame, surely China has a bronze bust somewhere near the entrance. Literally millions of Chinese, newly employed and making consumerist wages, have opened stock trading accounts. For them, its the Roaring Twenties. What changed? China took extreme measures to increase the liquidity in their financial system – precisely what the European Central Bank denied to Greece. 

Liquidity is what pays off the account holders in the event of a run on the bank, because in reality, banks don't store money or any other assets, they only record accounts of running debts. Liquidity builds confidence. Liquidity is what Ben Bernacke forced down the throats of the Wall Street cabal to staunch the bloodletting in 2008. When Europe pulled the liquidity backstop away from Greek banks, ATMs ran dry and depositors took a haircut on their holdings, but systemically, it was much worse than that.

 


 

Greece, Spain, Portugal, Italy and other debtor countries have been under the same mode of attack that was waged by the IMF and its austerity doctrine that bankrupted Latin America from the 1970s onward.

–Michael Hudson

Currently, the average USAnian's net worth is at a record high, but if you were to try to find that average person, it could take you quite a while. Seventy million US citizens are teetering on the edge of financial ruin. They’re one paycheck away from default on their mortgage or health insurance premium. How does one explain their record high net worth? (a) concentrations of extreme wealth at the top of the pyramid; (b) inflated real estate and other asset valuations; and (c) inflated valuation of the dollar, backed by nothing more than vivid imagination. Fantasy is infectious, so there has been a capital flight to Turtle Island on the expectation that it would be a bastion of stability, its deregulated regulators standing as a tall cliff over the tsunami about to engulf the world economy.
 

Hellenistic Greece "Diadochen1" by Captain_Blood – Own work.
Licensed under CC BY-SA 3.0 via Wikimedia Commons

The Greeks invented modern banking a couple millennia ago – credit based trade, hedge funds, options, foreign exchange, and so on. And, as we might expect, what's happening in Greece now is nothing new. Athens suffered a land and agrarian crisis in the late 7th century BCE and its citizens took to the streets, throwing bottles and protesting food prices. The Archon (city manager) Draco made severe reforms in 621 BCE ("Draconian" they were called), but these failed to quell the conflict. The crisis lasted another 27 years until the moderate reforms of Solon (594 BCE) lifted austerity while paying off creditors, with the added benefit of firmly entrenching the aristocracy.

The first financial crisis happened in Greece around 600 BC. Since then, Greece has defaulted on their loans more often than any other country in the modern world. In the past 200 years or so, Greece has defaulted about half the time.

Even though Greece has already received $284 billion in bailout money over the past five years, they still couldn’t get it together. One reason why was because most of that money went to financial institutions, and only a small portion went to the people.

Another reason why was due to their pension system. By now, everyone has heard the stories of the hairdresser example… That is, someone who’s worked as a hairdresser for three years, then retires around age 50-55 and receives nearly a full pension. Multiply this by more than two million pensioners, along with a whole lot of other financial problems, and you see why Greece is in such deep trouble.

Aden Forecast
 


Our spider senses tingle when we hear someone reading from one of Ronald Reagan's index cards about mooching welfare mamas driving a Cadillac. Those spendthrift pensioners! Originally the Greek debt was owed to French, Dutch and German banks but now is owed mainly to agencies like the European Financial Stability Facility, run on behalf of 19 governments, that most recently lent Greece (to kick the can down the road) 145 billion euros borrowed from the bond markets at high interest. Hmmm. Sounds a lot like the sub-prime market of, say, 2005, with European banks in the position of Countrywide and AIG.
Brian Davey writing for Feasta says:

If you kick the can down the road repeatedly you eventually run out of road. What should have happened much earlier in this process was an admission that the French, Dutch and German banks had made a mistake lending to Greece and they should have taken their loss. Perhaps Greek officials and Goldman Sachs, which helped to hide the fact that Greece could not pay, should have been prosecuted.


Davies goes on to draw the crucial link between energy and economy:

[W]hile Greece (and Spain and Italy and Ireland) was growing there were good reasons to send money to Greece – to invest in the building of holiday hotels for example, or in the building and civil engineering companies that built the hotels and the roads to the resorts. This was not buying and importing Greek goods – but it was putting money back into the pockets of Greeks in the form of investment in the business activities of a growing economy. If deficit countries are growing then mechanisms will exist to recycle purchasing power internationally. Once growth stops then there is no reason to send money to deficit countries and they are in trouble – as has happened throughout southern Europe and Ireland. I think that this is the most plausible way of seeing things. And the reason that growth began to fall off was rising energy prices because of depletion, because we are reaching the limits to economic growth. Because energy enters into all economic activities this undermines growth because people and companies struggle to service their debts AND pay the higher energy prices. That’s the ultimate reason that interest rates had to come down through quantitative easing.

 
Looking at a historical chart of US debt, one sees that it remained virtually unchanged from first ill-fated settlement in the 16th century, showing only slight bumps with each major war, until approximately 1970 when it went ballistic. What happened then? Gold bugs will tell you it was Nixon taking the dollar off the gold standard, unleashing the beast of fractional reserve banking and fiat currency. Rather, we find it more plausible that 1969 was the year US oil production peaked and, like their Greek counterparts, US companies began to struggle to service their debts AND pay the higher energy prices.

The US trashed Bretton Woods when it took the dollar to the oil standard by getting Saudi Arabia and other producers to sell their oil for dollars only. If you wanted to buy oil you needed dollars, and so dollars flowed back into the US, favorable trade balances masked the dollar's inflation (and the massive debt to sustain cheap energy) and American banks laughed all the way to the voting booths.

Meanwhile, life in Greece goes on, amid the financial wreckage. As Jan Lundberg, who has been trying to revive commercial sail transport in the Mediterranean (to replace more than four million fishing and small cargo vessels now spewing oil smoke and bilge) reports:
 

The jump in homelessness, many of the housed doing without heat in winter, and foregoing improvements in life that people had grown accustomed to, are well known. So it is no wonder that money is almost universally seen as the problem and the solution. The once hopeful consumer population has been ravaged: 1.3 million people, or 26% of the workforce, are without a job (and most of them without benefits); wages are down by 38% since 2009, pensions by 45%, GDP by a quarter; 18% of the country’s population unable to meet their food needs; 32% below the poverty line. Almost 3.1 million people, 33% of the population, are without national health insurance.


The ECB could solve Greece’s problem with a few computer keystrokes. The effect would actually be to stimulate the European economy.
 
Instead, Greece remains a whipping boy to keep the rest of the periphery in line. If either side decides to reject the latest deal, we could see an exit from the European Union, and a return to the drachma. This would likely be good for Greece but not for the EU, which could then see so many countries exit that the central currency tumbles into obscurity.

If Greece switches to drachmas, the funding possibilities are even greater. It could generate the money for a national dividend, guaranteed employment for all, expanded social services, and widespread investment in infrastructure, clean energy, and local business. Freed from its Eurocrat oppressors, Greece could model for the world what can be achieved by a sovereign country using publicly-owned banks and publicly-issued currency for the benefit of its own economy and its own people.

 Jan Lundberg says:

There are two kinds of people, whether in Greece or elsewhere: those who welcome or understand that fundamental change and discontinuity are inevitable, perhaps on the way too soon for convenience, and, those who fervently want the level of income and consumption of the past — regardless of economic and ecological realities. Fortunately for Greeks, they have a continuous and ancient society under the surface of the unstable transnational corporate state.


Summer in Greece often brings wildfires and this year is no different, although climate change doesn't help. In 2007 one fire covered 25.000 hectares north of Athens and as we write this flames are again creeping towards Athens from the North and the government has called out the Air Force and Army to help fight 34 separate fires. Isn't it lucky they still have organized fire departments and emergency responders there? They have come very close to not having that.

Greece is retracing its steps back through the ascent of Western Civilization to an earlier era when the best hedge was a good olive press. Many there, as elsewhere, cannot imagine losing the perks of advanced civilization. Stranded expectations – whether in Athens or Brussels – cloud peoples' thoughts. We are all Greeks. Harder lessons are coming. 

Suicide by Deflation

Off the keyboard of John Ward

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Published on The Slog on December 16, 2014

dogtailpt

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CRASH2: Neoliberalism, murderer of inflation, commits suicide by deflation.

How devious geopolitics and dead-end globalism combined to eat the world economy

You have to hand it to the neoliberal fraternity – perhaps I should say patriarchy – there’s never been a belief system in history capable of breaking all its own rules one by one, and still trying to tell us it’s the best socio-economic development system on the planet.

The world’s Milt-milkers have variously demanded to be nationalised, expected to be saved, opposed any and all reform, used austerity as a form of stimulation, tried Zirp as a means of increasing spending power in a recession, produced endless monopolies of media, banking and energy, used the biggest Government market interventions of all time, and then produced the slump to end all global slumps.

I’ve read most of Friedman’s stuff, and leaving aside for a second its narrow academic inability to take real people into account, I really don’t remember any of the above features being present in his work. However, one thing he did like was the idea of conquering chronic inflation; so whatever else one wants to throw at the neolibs, this you have to grant them: they have indeed wiped out inflation.

Imagine my surprise, therefore, when around five years ago 0% inflation suddenly became a spawn of the Devil. Yes – believe it or not, and frankly it’s an unavoidable conclusion – those who used Milton Friedman as their guiding light for so many years have even decided that this tenet of the Messiah’s gospel is also a false witness. (Or to use the other excuse, “Milt would never have recommended doing this”).

What we have today – and the virus is spreading fast – is deflation. So today I’d like to ignore all the other drivel that MF spewed out over three decades of abject failure in the real world, and focus single-minded on that.

Why did inflation suddenly swap places with deflation as the Great Global Bogeyman?

The answer is threeofold: politicians spending beyond their means, greedy bankers trading with each other beyond human understanding, and bourse-demanded growth insisting on consumer credit.

Succinctly, exposure to dangerous level of debt.

In an inflationary world, debt gets smaller in real terms all the time. So banking and politics have one thing that binds them together above any other: to avoid a deflationary world where debt gets bigger in real terms.

The globalist world today runs, grows, produces, swaps, and demands debt. Whereas real, entrepreneurial capitalism takes calculated risk to produce positive growth, mercantilist monopolism requires unfeasible debt just to function.

So where there is debt, there must not be deflation. And that’s why, after 2008, deflation went, with one mighty bound, from Goal of the Good to Spawn of the Devil. That’s largely why we had QE to erode currency value, Zirp to make repair easier – and specifically now, gold suppression to make it cheaper for sovereign central banks to repair past insanity in their dealings with neoliberal politicians and bonus-obsessed merchant bankers.

But the mixture of geopolitical ego and systemically flawed economic theory is a heady brew, Cynthia. Mercantilism on a global scale replaces war as the new dimension of diplomacy, and fossil-energy monopolism creates an obsession with access to it. So before you know where you are, devious tactics and greedy strategies create a maelstrom in which the urgent overtakes the important.

The circle of contradiction this involves is getting tighter with every week.

The price of oil must fall, the euro must fall, borrowing costs must fall, the Ruble must fall, gold’s value must fall. Even wages and commodity prices must fall. The result of all this is the terrible trio – falling demand, falling costs, and falling prices – followed by the tragic twosome – rising welfare costs and rising taxes.

On and on it goes. For raised taxes reduce demand still further, rising welfare costs increase debt further, and so deficits get bigger and borrowing costs get higher. This is why Osborne is in a corner, and Abenomics veers all over the place while getting nowhere.

When the Ruble falls, however, only higher rates will prop it up. When neoliberal austerity and growing wealth inequality kill economic recovery, borrowing yields spike…and another dimension now sits alongside deflation to raise the real level of debt.

I’ve been saying for three years that you cannot have a world in which everyone wants Zirp all the time: not only does that too reduce the spending power of the wealthiest age demographic, in a world where nations have competing geopolitical, social and economic priorities, it is a preposterous idea built on the hubris of distorted Alpha minds.

The bottom line is this: everything energy monopolism forces sovereigns to do geopolitically negates everything that sovereign banks need to do fiscally and financially.

Reagan and Thatcher championed the neoliberal economics of the smaller State as the way to defeat inflation. Having murdered inflation, the monopolous greed that underlies such economics has created its own murderer – deflation.

There is no way out of the cul-de-sac now, nowhere else to turn, nothing else to try. We are heading unstoppably for the sort of confluential collapse that changes everything. And the ignorant, unthinking nature of this endgame is summed up by a tweet I page-captured this morning:

repubnutGod bless America.

BRICS against Washington consensus

Off the keyboard of Pepe Escobar

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THE ROVING EYE

brics-article

Originally published in Asia Times on June 3, 2014
Discuss this article here in the Diner Forum.

 

The headline news is that this Tuesday in Fortaleza, northeast Brazil, the BRICS group of emerging powers (Brazil, Russia, India, China, South Africa) fights the (Neoliberal) World (Dis)Order via a new development bank and a reserve fund set up to offset financial crises. 

The devil, of course, is in the details of how they’ll do it. 

It’s been a long and winding road since Yekaterinburg in 2009, at their first summit, up to the BRICS’s long-awaited counterpunch against the Bretton Woods consensus – the IMF and the World Bank – as well as the Japan-dominated (but largely responding to US priorities) Asian Development Bank (ADB). 

The BRICS Development Bank – with an initial US$50 billion in capital – will be not only BRICS-oriented, but invest in infrastructure projects and sustainable development on a global scale. The model is the Brazilian BNDES, which supports Brazilian companies investing across Latin America. In a few years, it will reach a financing capacity of up to $350 billion. With extra funding especially from Beijing and Moscow, the new institution could leave the World Bank in the dust. Compare access to real capital savings to US government’s printed green paper with no collateral. 

And then there’s the agreement establishing a $100 billion pool of reserve currencies – the Contingent Reserve Arrangement (CRA), described by Russian Finance Minister Anton Siluanov as “a kind of mini-IMF”. That’s a non-Washington consensus mechanism to counterpunch capital flight. For the pool, China will contribute with $41 billion, Brazil, India and Russia with $18 billion each, and South Africa with $5 billion. 

The development bank should be headquartered in Shanghai – although Mumbai has forcefully tried to make its case (for an Indian take on the BRICS strategy, see here ) 

Way beyond economy and finance, this is essentially about geopolitics – as in emerging powers offering an alternative to the failed Washington consensus. Or, as consensus apologists say, the BRICS may be able to “alleviate challenges” they face from the “international financial system”. The strategy also happens to be one of the key nodes of the progressively solidified China-Russia alliance, recently featured via the gas “deal of the century” and at the St. Petersburg economic forum. 

Let’s play geopolitical ball 
Just as Brazil managed, against plenty of odds, to stage an unforgettable World Cup – the melting of the national team notwithstanding – Vladimir Putin and Xi Xinping now come to the neighborhood to play top class geopolitical ball. 

The Kremlin views the bilateral relation with Brasilia as highly strategic. Putin not only watched the World Cup final in Rio; apart from Brazilian President Dilma Rousseff, he also met German chancellor Angela Merkel (they discussed Ukraine in detail). Yet arguably the key member of Putin’s traveling party is Elvira Nabiulin, president of Russia’s Central Bank; she is pressing in South America the concept that all negotiations with the BRICS should bypass the US dollar. 

Putin’s extremely powerful, symbolic meeting with Fidel Castro in Havana, as well as writing off $36 billion in Cuban debt could not have had a more meaningful impact all across Latin America. Compare it with the perennial embargo imposed by a vengeful Empire of Chaos. 

In South America, Putin is meeting not only with Uruguay’s President Pepe Mujica – discussing, among other items, the construction of a deepwater port – but also with Venezuela’s Nicolas Maduro and Bolivia’s Evo Morales. 

Xi Jinping is also on tour, visiting, apart from Brazil, Argentina, Cuba and Venezuela. What Beijing is saying (and doing) complements Moscow; Latin America is viewed as highly strategic. That should translate into more Chinese investment and increased South-South integration. 

This Russia-China commercial/diplomatic offensive fits the concerted push towards a multipolar world – side by side with political/economic South American leaders. Argentina is a sterling example. While Buenos Aires, already mired in recession, fights American vulture funds – the epitome of financial speculation – in New York courthouses, Putin and Xi come offering investment in everything from railways to the energy industry. 

Russia’s energy industry of course needs investment and technology from private Western multinationals, just as Made in China developed out of Western investment profiting from a cheap workforce. What the BRICS are trying to present to the Global South now is a choice; on one side, financial speculation, vulture funds and the hegemony of the Masters of the Universe; on the other side, productive capitalism – an alternative strategy of capitalist development compared to the Triad (US, EU, Japan).

Still, it will be a long way for the BRICS to project a productive model independent of the casino capitalism speculation “model”, by the way still recovering from the massive 2007/2008 crisis (the financial bubble has not burst for good.) 

One might view the BRICS’s strategy as a sort of running, constructive critique of capitalism; how to purge the system from perennially financing the US fiscal deficit as well as a global militarization syndrome – related to the Orwellian/Panopticon complex – subordinated to Washington. As Argentine economist Julio Gambina put it, the key question is not being emergent, but independent. 

In this piece, La Stampa’s Claudio Gallo introduces what could be the defining issue of the times: how neoliberalism – ruling directly or indirectly most of the world – is producing a disastrous anthropological mutation that is plunging us all into global totalitarianism (while everyone swears by their “freedoms”). 

It’s always instructive to come back to Argentina. Argentina is imprisoned by a chronic foreign debt crisis essentially unleashed by the IMF over 40 years ago – and now perpetuated by vulture funds. The BRICS bank and the reserve pool as an alternative to the IMF and World Bank offer the possibility for dozens of other nations to escape the Argentine plight. Not to mention the possibility that other emerging nations such as Indonesia, Malaysia, Iran and Turkey may soon contribute to both institutions. 

No wonder the hegemonic Masters of the Universe gang is uneasy in their leather chairs. This Financial Times piece neatly summarizes the view from the City of London – a notorious casino capitalism paradise. 

These are heady days in South America in more ways than one. Atlanticist hegemony will remain part of the picture, of course, but it’s the BRICS’s strategy that is pointing the way further on down the road. And still the multipolar wheel keeps rolling along. 

 

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

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