The World Economy: into the Wild Blue Yonder

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It would be comforting for many to imagine that our globalized economy is a conspiracy,  a murky cabal, directed from the shadows by some Bilderberger-ish, ecumenical-protocol, of sinister "elders", who are pulling all the strings.

I say comforting because presumably, if sufficiently intimidated, the people who got us into this mess could easily pull their strings and get us out.

However, I am afraid that instead of being something so tidy, there are no identifiable human hands on the controls of our world and the whole thing is simply on automatic pilot...

How does that work?

I could illustrate that with an old joke I recall.

An airliner takes off full of people and a metallic voice comes over the speaker system:

"Welcome aboard Acme Airlines flight 505 to London, the first totally automatic flight in aviation history, this is your computerized control system speaking, totally free from any possibility of human error, there is no pilot on board,. We hope you enjoy your flight. We will be flying at an altitude of 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet, 30,000 feet,  30,000 feet....

That is where I think we are right now. No one is in charge: the system itself has taken over and has no idea of the future but to grow endlessly.

In globalization, the deregulated system expresses itself freely qua-system and even the famous buttinsky billionaires like Sheldon Adelson or the Koch Brothers and their Tea Party accolytes are mere puppets, reacting like Pavlovian pooches to the stimuli produced by the unshackled world mishagoss, as are those politicians they use their billions to influence (buy, bribe).

I call this system "stateless-imperialism".

Classical state imperialism could be illustrated by the 19th century British empire's destruction of India's native textile industry and forcing Indians to buy cheap, industrially produced, cloth from Britain's satanic mills. This captive market made Britain rich and caused many an Indian weaver to literally starve to death and sucked commercial life out of India's villages.

In short imperialism was generally good for the British, but generally bad for the Indians and the distinction between being British and being Indian was clearly marked with indelible ink.

Stateless imperialism is quite similar in its effects, but the lines of winners and losers has little reference to state boundaries, color or creed.

A roughly hypothetical example might go something like this. The prices on the world cotton market, chock a block with subsidies, but without significant tariff barriers, fall dramatically and this allows the reborn Indian textile industry to turn out a lot of cloth cheaply and allows the many brown and nimble fingers of sweatshop ladies in India and other Asian countries to turn out attractive clothing at near-slave wages; clothing which is to be sold by multinationals in expensive boutiques all over the developed world and after being worn there, turns up second hand in the street markets of Africa thereby putting native African industry out of business.

Meanwhile, thousands of Indian cotton farmers, with the collapse of world cotton prices, finding themselves drowning in debts they are unable to pay, commit suicide, leaving their widows and orphaned children to sell themselves into indentured servitude to eventually pay those debts.

Of course in this environment the British textile industry disappeared ages ago and its descendents loiter on street corners wearing hoodies.

All of this is logical, cause and effect. Just business... unchained business.

The suffering is the same as in state-imperialism, but in stateless-imperialism there is no "king and country" and no "viceroy" and certainly no one lining up to "bear the white man's burden". In classic state-imperialism, identifiable robber barons, celebrated in song and story, controlled entire industries. Today there are no Henry Ford or John D. Rockefeller figures, once upon a time there was a man actually named J. P. Morgan, God only knows what or who J. P. Morgan really is today. Now, like "flight 505 to London", the world economy is flying itself... look ma, no hands.

When I say this world system is on automatic-pilot, I'm not saying that are no human beings involved in running these mechanisms, only that these humans are merely hired managers with stock options, whose only assignment is to maximize shareholder value, if they don't do so they will soon be replaced by their board of directors, men and women who themselves represent only a tiny fraction of the total, largely faceless, equity. In short, faceless men and women create "value" for faceless often momentary shareholders in mastodonic enterprises of no clear national or personal affiliation and whose only horizon is the quarterly report.

Many have ridden this impersonal process to wealth, but none control it and the fallen lie all about us and the walking wounded crowd the roads. DS

Looking on the bright side of life - Part Two

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"Melancholia" - Lars Von Trier

Looking at the political paralysis of the American political system, the wasted lives and treasure in Iraq and Afghanistan, the ceaseless unrest in the Arab world, the increasing possibility of a war with Iran and the sense of imminent financial collapse, I get the feeling I am only hearing the other shoe drop.

With a little historical perspective you might see that the mysterious process of transformation, a continuum, that began only 22 years ago (a blink of the eye history-wise) with the fall of the Berlin Wall and the subsequent sudden, unforeseen, collapse of the Soviet empire is also attacking the remaining economic, military and political structures of world power. In other words, in time, we won't see these as separate, unconnected events, but as one continuous, unfolding, tragedy, such as the period of similar length between World War One and World War Two; a tragedy that was rooted in the culture, economic and political developments of the 19th century as ours is rooted in the culture, economic and political developments of the 20th.

Nowadays as was the case in Eastern Europe as the USSR fell apart and its grip loosened, our "satellites" and our client regimes are in revolt and/or collapsing too. Perhaps the financial system is just a "leading indicator" of this ongoing metamorphosis.

I am coming to believe that we are living through some sort  of process of deep systemic change and end of an era that might have begun with the industrial revolution: a period which we don't have enough distance or perspective to properly understand and that the fall of USSR was simply a warning, something similar to the water receding before a tsunami hits. Foolishly, instead of taking precautions, we wandered out in the tidal flats collecting seashells... now the tide is rolling in and it is too late to run for cover. DS

The bright side of life - revisited

“When you’re chewing on life’s gristle

Don’t grumble, give a whistle”

Eric Idle

I am in the process of reworking a lot of my material, looking to see if I could ever make a book out of it all, trying to see what, if any, threads of thought might hold it all together. This is a rough draft of some of the reworkings. Thank you for your patience. DS

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Things are looking pretty dismal at the moment. The economic situation is the worst in my lifetime, and I was born at the end of WWII.  The bad news comes fast and furious. When I am subjected to an information overload, I occasionally experience some sort of intuitive flash connected to images, a sudden understanding/epiphany/gestalt.

The other day the Tea Party movement revealed itself to me in a poetic metaphor that put them into a different perspective. Something that although just as grotesque, is at the same time touchingly human in its vulnerability.

It came to me that the Tea Party movement with their confused and confusing agenda, the open carrying of fire arms in Starbucks, the birthers, the militias, the “Last Days” crowd, the Limbaughs, the Becks, and all the assorted, foxy, incoherent mishegoss that goes with them is one and the same thing as collagen lip injections, faces paralyzed with botox or toupees and comb overs: a self-deceiving escape from the inevitable. Fooling the mirror perhaps, but nobody else, certainly not Father Time or the Grim Reaper or the great undercurrents of events. This escapism from the simplest of realities is one of the hallmarks of our era.

The Tea Baggers, like the botox zombies, are just whistling past the graveyard.

Everything we are living right now, from global warming to the juking and jiving of the financial system, from exploding population in poor countries, to aging populations in the rich ones, is crying out for more regulation, more control, more transparency and more taxes to pay for it. This is either going to happen or our world is going to disintegrate into a devil’s stew of famine, pollution, explosively intolerable inequality and endless war… not necessarily in that order.

The world of the future will be a world of control or it wont be.

The world of the future will be a world of iron rules and regulations and with all the privacy of a nudist camp, or it will be a nightmare beyond our powers to imagine.

This process is as inevitable as aging leading to dying.

People do some some weird stuff when staring down the one that the Spanish call “the bald lady”… death.

Just as an aging woman who has had her lips blown up like Donald Duck fools herself into thinking she is still desirable, someone who walks into Starbucks with a pitiful little pistol on his hip fools himself into thinking he has power over his life and future. He sips his latte made from coffee grown in an impoverished third-world narco-state and sits there worrying about a dark skinned “socialist” coming and taking his little gun away.

The word “socialism” is thrown about with so much abandon. The word is used as an automatic disqualification, something both strange and sinister, touched with the “Mark of the Beast”.

However, the world we are fast approaching would be fortunate if it were somehow connected to Liberty, Equality and Fraternity, somehow an expression of international solidarity. Because the alternative, at best, would be a global version of a huge Indian slum, a human ant’s nest crossed by open sewers, filled with hunger, anger and disease or living skeletons listlessly wasting away in starved apathy: the world’s misery huddled at the feet of a few gated communities, heavily guarded by… Predator drones.

Even before our Friedmanite economy showed us its athlete’s feet of clay, we could see that fossil fuels were a finite source and that their continued use might make it difficult for our species to survive.

And if the economy does pick up again, the Chinese and the Indians imitating the American Way of Life with its phenomenal waste of fossil fuel energy could lead to God knows what kind of terminal ecological collapse.

Of course the problem is that to sustain itself our economy must grow constantly, like a bicycle that will fall over if it ever stops. The fact is that we may “running out of road”, reaching some sort of limit, a sort of musical chairs, where the few chairs left have already been taken by the rich while the great mass of the world’s population mills around with nowhere to sit and little to eat after the music stops.

It would seem obvious to me that if we are not going to see the world entirely degenerated into some Hobbesian dystopia, we are going to have to create and run a very tightly organized, strictly regulated and equitable order of society. If the trends we see today continue, I believe that will be inevitable, so fast becoming inevitable, that even a person like me, in their mid 60s, might live to see it.

The question, will be how to preserve the republican trinity, “Liberty, Equality, Fraternity” in such a tightly ordered society.

These three things often don’t go together or are mixed in very weighted proportions.

Lets look at Germany before the collapse of Communism:

In East Germany, for example, you had a very sinister secret police and steady repression of all dissent. You had very few consumer goods and no freedom to travel. However, you also had total job security, a good free school system (Angela Merkel is a product of that system) and subsidized housing and free health care.

That system was defeated because Western Germany had strong labor unions, good free schools and health and subsidies… and also freedom of speech, assembly, travel and abundant consumer goods… No contest. Obviously West Germany’s “Social Market Society” came closer to “Liberty, Equality, Fraternity” than “Real Existing Socialism” did.

However in the future, because of the need to husband fossil fuels and other natural resources, we will probably find ourselves stripping out the abundant consumer goods from the mix and certainly mass tourism to the four corners of the earth, with its frivolous burning of ever scarcer oil, will be a fairy tale that today’s children will tell their grandchildren about.

If we are going to be moving toward a world of limited energy use, zero growth sustainability, less possibility to travel and fewer consumer goods and so forth, about the best we could hope for would be East Germany without the Stasi and with free speech, assembly and habeas corpus.

Right now the dynamic of our system seems to be to “Friedmanize” the world and break down social democracy wherever it is found, impoverish people and make their lives precarious.

This sort of society where the majority is impoverished, while a minority becomes amazingly rich, has been proven to only work with a military dictatorship and police state repression… and even then hunger and precariousness cannot go on beyond a certain point without engendering revolutionary movements.

Admittedly the human animal can continue to flourish in conditions where any other self-respecting mammal would stop breeding and go extinct, but even so, if you oppress them enough, they turn and bite.

Certainly if you increase the percentage of the poor and precarious beyond a certain level the word “freedom” begins to take on different nuances: freedom from what? freedom to do what? That is when some version of Equality, Fraternity, without Liberty, a version of East Germany “uncut” might seem very attractive to many desperately poor and insecure people.

If any young person is looking for something useful to do with their lives, helping to organize and build a world where free people live in brotherhood, sharing out the world’s limited resources equitably, would certainly fill the bill. DS

Will this all end with a bang or a whimper?

David Seaton's News Links

 

U.S. corporate profits and efficiency are getting absurd. On Friday we saw record quarterly profits of $1,450 billion, making up a record share of GDP at 10.1%. We're also at record corporate efficiency of $15,278.72 -- up 22.3% from last year (...). That last one says it all. Rampant job cuts and salary cuts, with new responsibilities for old workers, during the recession turned corporations into profit-making machines. Stimulative policies from the government and the Federal Reserve helped plenty. New technology also helps with efficiency. Unfortunately there are no signs that corporations are turning revenue into jobs. Business Insider

The problem with US manufacturing is not that it has been shrinking – despite the “offshoring” of textile and electronics manufacturing to China, US manufacturing output rose by 3.9 per cent a year between 1997 and 2007. However productivity grew 6.8 per cent annually in the same period, so millions of jobs were lost. If manufacturing carries along the same path, McKinsey estimates that it could shed another 2.3m jobs by 2020, while the economy needs to create 21m more jobs to return to full employment. The mini-recovery in manufacturing jobs – 164,000 were added in the six months to April – recently stalled. John Gapper - Financial Times

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy. The alternative is – like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability. Nouriel Roubini - Project Syndicate

Since Steve Jobs announced his resignation a few days ago, there have been endless (well deserved) paeans to his genius and how sorely he will be missed. However, it seems to me that what the world needs more than anything else right now is not another Steve Jobs, but another Henry Ford.

This is because the jobs that Jobs has provided are mostly for people with post-graduate degrees and what is needed now is what Henry Ford provided: steady, well paying, jobs for people with even less than a high school education. Ford created an entire industry based on the idea that the men that worked in his factories should earn enough wages to buy the cars they themselves made. That concept was the keystone to America's disappearing middle class prosperity.

The present technological revolution means that workers in today's more advanced and "competitive" industries often need some two years of specialized training to be of any use at all, thus advances in productivity are creating an impoverished subclass of "working poor"... if they can find work.

Most commentators think that this problem can be solved by improving education to make those entering the work force more "competitive". Certainly education is always valuable even for (or especially for) its own sake. But those who have sweated through four or many more years of university to acquire marketable skills, should not feel smug.

Those with post-graduate degrees in math and engineering should be looking warily over their shoulders at the advances in artificial intelligence (AI). They might ponder on the programs that today allow computers to defeat the world's most skillful chess players. If we take as a working hypothesis that artificial intelligence is now at about the same stage as personal computers were at the beginning of the 1980s (remember the Commodore 64?)and project the trajectory of AI similarly into the coming three decades they could easily picture their futures as Walmart greeters... if Walmart can find enough paying customers to stay in business... or, more probably, armed with their PHD in math, finding employment as security guards or gardeners at a gated community for (fill in blank)...

Thus the system seems to be moving inexorably toward eliminating human input except as credit-fed consumers. It doesn't take a rocket scientist to see that this cannot be sustained for very long without a political explosion of some kind... now that credit is crippled, perhaps for good.

Tragically this explosion probably wont happen in the USA, where it is needed most.

Most of today's middle class Americans, in contrast to the rioting, overcrowded, ghetto residents of a few decades back, live isolated in places that Gertrude Stein described as "when you get there, there is no there, there".

In the USA there is really no equivalent to Cairo's Tahrir square or Madrid's Puerta del Sol: a recognized demonstration-drome, which can make governments and societies themselves stop in their tracks. There is no Bastille* to be taken in the United States, just angry, isolated people stewing alone in darkened living rooms, easy prey for the ilk of Glenn Beck and the Tea Party crazies. It probably will be they who inherit the wind. DS

*did you notice how French millionaires, who do remember the sans culottes, and the Paris Commune are lining up to pay higher taxes.

Er, uh... it seems the world is coming to an end... whatever.

Chart from ClusterStock

We are witnessing (how) a peak in a parabolic finance/asset/stock bubble of world proportions, is going to pan out. I think the entire credit crisis can be looked at from that perspective. We are merely witnessing the relentless unwinding of the biggest financial bubble in history. And, ominously, this particular bubble has grown from the end of WW2 to the present. That is one HUGE economic bubble, and this one envelops the entire world. This is not just a bubble in one country's economy. We are talking about the deleveraging of the greatest economic/finance bubble in history. Once the level of leverage reached 60 to 1, it becomes impossible to stay ahead of the deleveraging, even for central banks. The implications are staggering. Every major economy in the world is involved. The outcomes of deleveraging this monster bubble, represented by the green oval, will be what I term Credit Crisis II. At 60 to 1 leverage, a loss of 1 to 2% wipes out the capital. Christopher Laird

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These days the zeitgeist is rich with "end of the world" scenarios. The one I have quoted above is one of the milder ones: in it the waters are not going to rise or oil peak, in it sentient life on our planet is not directly threatened, we simply have to "deleverage", that is to say, pay back all the money we owe... all of us... simultaneously.

If I understand even a tiny bit of its implications, it would seem that most, if not all, of the wealth of our world is fictitious and that right now we are, every man jack of us, everywhere in the world, more or less in the position of a holder of Confederate currency and bonds on the eve of Appomattox.

Here is another quote from "gold bug", Mr. Laird:

Cross linkages reveal that it is virtually impossible, even with bailouts, to purge the ever growing $500 billion and counting losses of capital from the banking/financial system. The latest numbers being speculated on are the losses will be over $1 trillion (IMF) and $2 trillion or more (Roubini).

Now, maybe $2 trillion doesn't sound like a lot compared to the entire world economy. The trouble is, that capital is leveraged anywhere from 10 to 50 times by the financial system. Fannie and Freddie have 60 to 1 leverage.

Losing $2 trillion of capital will totally wipe out the entire world financial system for a decade because of the leverage at 60 to 1. Basically, unless those losses can be purged in some way, it has to be earned back over a period of years/decades. That essentially cripples the entire world financial system.

If all this is so and it plays out as Laird prophesies, it will mean levels of universal, simultaneous social unrest such as has never been seen in all history and will require massive government intervention and the nationalization of practically everything to keep people eating and maintain the basic infrastructure of civilized life... socialism, you might call it.. the question will be, if it is going to be coordinated internationally by the G-20, the EU, IMF and the WTO or will it be "national socialism", with all the baggage those two words carry. Whatever the remedies employed, we would be looking at a situation every bit as game changing, more so probably, than the collapse of the Soviet Union.

Raptured or ruptured?

Experience tells us that it probably wont be as bad as Laird paints, although experience is an all too faulty guide to totally new situations.

But, until the sky finally falls, the sheer proliferation of "Chicken Little" wannabes like Christopher Laird seems significant in itself... The ice is melting, the cows are farting, the oil is peaking, Jesus is in the green room, Obama is a communist, take your pick.

Me, while waiting for civilization to collapse, for the trumpets to sound, I think I'm going to chill out with a Spanish summer classic called "tinto de verano", which is basically one to one chilled red wine with iced Seven-Up.

Very nice stuff on a sweltering summer night, taken in good company, watching the world go by, sitting in a sidewalk cafe. DS

Rafting down shit creek under "Matthew's Rules"

Matthew's Rules:
"For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath." Matthew 3:12

"Them that's got shall get/Them that's not shall lose/So the Bible said and it still is news." Billie Holiday

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I'm always on the lookout for the right metaphor, the one that sums something up with one image, and "rafting" came to me as one that describes the economic, soon to be social, crisis we are all living through right now.

Rafting isn't like sailing a boat, where, taking into account the direction of the wind and ocean currents, you chart a a course and sail to it with the possibility of changing your mind and sailing back. In rafting, once you are in the river there is no turning back; all you can do is hold on tight and try to keep your boat from hitting rocks, or turning over. This can be exciting when led by an expert guide who makes the descent several times a week or even several times a day, but no fun at all when the river's depth, speed, approaching rocks or waterfalls are unknown.

That is the case of the crisis we are living through now, nobody really understands what is going on or what is waiting around the bend.

Matthew's Rules:

We may not know where we are going, but we do know where we have been. A tiny group of men and women (almost all of them men, really) have created a speculative bubble and burst it, and those who created the mess made enormous fortunes blowing the bubble up, made enormous fortunes betting against their own bubble, received enormous bailouts of taxpayer's money when the bubble burst and are making enormous fortunes while you read this. And all of this is something which is creating untold pain and hardship for most of the world's population and may be the beginning of a historical period as dark as the 1930s.

Here is how William Pfaff puts things into perspective:

A feature of modern capitalism, in which the United States seems currently the leader, is that the country where corporations are effectively headquartered have impoverished schools, rotting, rusting infrastructure, and third world social and health facilities, while billions are paid to corporate and banking executives. This is a moral scandal even though economic elites promoting the dominant economic theory prevailing until now in the leading free-market countries have identified morality as a source of market distortion and economic inefficiencies. Self-admittedly profligate Greece did not invent the world crisis, nor did Portugal, Spain nor Italy. The guilt lies with the United States, source of modern intellectual global leadership and exemplar of democracy. It did not even have a serious reason. Americans did it to make money gambling with other people’s money.

That's pretty cold stuff, but, as usual, Pfaff has nailed it. The frivolity of the whole thing adds insult to injury.

Perhaps the only bright spot in the whole mess is that the crisis has finally eviscerated what the French call neo-liberal "pensée unique", the intellectual structure of this particular chapter of capitalism, which Pfaff calls, "the Ronald Reagan, Alan Greenspan, Ayn Rand, School of Chicago fantasy".

With the Soviet Union's brand of "real existent socialism" and Milton Friedman's version of "real existent capitalism" both now in smoking ruins, maybe some serious new thinking may arise.

What is obvious, at least to me, is that things like human rights and financial regulation have to be packaged together so tightly that no daylight appears between them. I don't think this is going to happen in China, I'm sorry to say that I don't think it is going to happen in the USA, in any foreseeable future, either.

The historically unique crisis that is transpiring around the euro, may have the seeds of this human rights and multinational regulation model, that is surely the only path forward if globalization is going to be anything but a raft to hell. DS

It's been a long time coming...

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"We are in trouble today because we have allowed a culture of corruption and dishonesty to permeate our institutions and pollute our public discourse." Stephen M. Walt

Who would expect that such a noted "realist" in foreign affairs as Stephen Walt would say something so innocent. If only it were that simple. In reality the problem is systemic, not a result of individual or collective frailty.

As Daniel Gross wrote in Slate,

In the past few months, we've been riveted and disgusted by the exploits of scamsters like Bernard Madoff and Allen Stanford (characters who, if they didn't exist, would have to be invented by Tom Wolfe). It's both easy and convenient to hold them up as the ultimate symbols of the just-ended boom. But we shouldn't. While there was some crime in the mortgage industry, law-abiding, respectable, upstanding citizens caused the overwhelming majority of financial losses suffered thus far. Skeezy money managers and mobbed-up boiler rooms didn't create the economic catastrophe. It was visited on us by firms in the Dow Jones Industrial Average and S&P 500—companies that trace their origins back to the 1800s, run by graduates of Yale and Harvard. The people who blew up the system weren't anarchists.

That we are surprised and offended by the behavior of these supposedly "law-abiding, respectable, upstanding citizens" is itself a throwback to our pre-industrial past.

One of the most interesting insights of Eric Hobsbawm, perhaps the world's foremost living historian, is that early capitalism inherited from previous phases of civilization such as feudalism and the bourgeois revolution, a wealth of valuable social assets that were fundamental to its initial success.

Social and cultural assets such as thrift, the postponing of gratification, the importance of the family unit and even what the Bible calls "the fear of God" were fundamental in creating the "work ethic" that was essential to the early success of capitalism.

However important these values might have been to our capitalist system in its foundational moment, the system in itself is indifferent to them, for its only focus is on continuous and unlimited growth and profits.

When finally push comes to shove, if something cannot be qualified on a balance sheet it will be seen as irrelevant, often with great and wrenching regret for those involved in taking the decisions, for those among us who must decide are also inheritors of western civilization and its moral and ethical values... but the logic of the system is the master, not they: that logic must take precedence over their feelings of common humanity.

A created reality has become more real than flesh and blood.

If thrift, sacrifice, solidarity, the family or any other value comes into conflict with growth and profit, it is simply left to wither. That is how the lean and lanky, thin lipped, American puritan, with his calloused hands, was inflated to obesity and taught to shake his booty and shop till he dropped.

Thomas Frank's book, "The Conquest of Cool" , will fill in some of the blanks in this process for my readers.

And unfortunately, the collapse we are living through right now, being systemic, an organic crisis, has no easy remedy. Trying to stabilize an unstable system is just as likely to destabilize it further.

Intervening in complex systems without complete knowledge is extremely perilous. It would be wise to be skeptical of stimulus plans and other remedies; unless those who intervene have the skill and knowledge of brain surgeons - economists don't - the cure will often be worse than the disease.

Jeffery Sachs (yes, the same man who once nearly destroyed Russia while "reforming" it) wrote this in The Scientific American :

The U.S. political-economic system gives evidence of a phenomenon known as “instrument instability.” Policy makers at the Federal Reserve and the White House are attempting to use highly imperfect monetary and fiscal policies to stabilize the national economy. The result, however, has been ever-more desperate swings in economic policies in the attempt to prevent recessions that cannot be fully eliminated. President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years.(...) The lessons of the high inflation of the 1970s had supposedly chastened policy makers against trying to fine-tune the economy. The quest for never-ending full employment had contributed to high inflation in that decade, which required years of economic pain to wring out of the system. Monetary policies thereafter were supposed to be “steady as she goes,” not trying to smooth out every fluctuation and business cycle in the economy. During the decade from 1995 to 2005, then-Federal Reserve chairman Alan Greenspan over-reacted to several shocks to the economy. When financial turbulence hit in 1997 and 1998—the Asian crisis, the Russian ruble collapse and the failure of Long-Term Capital Management—the Fed increased liquidity and accidentally helped to set off the dot-com bubble. The Fed eased further in 1999 in anticipation of the Y2K computer threat, which of course proved to be a false alarm. When the Fed subsequently tightened credit in 2000 and the dot-com bubble burst, the Fed quickly turned around and lowered interest rates again. The liquidity expansion was greatly amplified following 9/11, when the Fed put interest rates down to 1 percent and thereby helped to set off the housing bubble, which has now collapsed. We need to avoid reckless short-term swings in policy.

Nobody is better qualified than Jeffery Sachs to know how tinkering can turn into tampering and how that tampering can destroy the lives and fortunes of millions.

What we are living today is perhaps history's most complete illustration of our "alienation": we are "strangers" to ourselves... every human being in the world has awakened at the same time to discover that everyone, everywhere lives in a system that we humans have created, but whose chaotic complexity has made it as uncontrollable as the weather and perhaps even less predictable.

Our economic system seems to be even more powerful than the weather, which it also seems to be destroying. It is certainly not our friend.

We are in no way its master, it is ours: we never have controlled it really, but this simultaneous, worldwide collapse brings that truth home and that is what is most unsettling about it. Our helplessness in the face of our "Frankenstein".

Like Gertrude Stein's, "a rose is a rose is rose", I would tell Professor Walt that, "We are in trouble today because we are in trouble today, because we are in trouble today".

That sense of helplessness is what is going to deepen and define this generation's sojourn: putting humanity back into the hands of humanity will be its challenge. DS

More on the bright side

David Seaton's News Links
I am often accused of being a doomster but I am not. I read the horrid economic news with very mixed feelings: fear, compassion, self-pity and hopeful exhilaration are all combined.

The first three are easy for my readers to figure out. I'm sure many share one or all of them with me. The last one, hopeful exhilaration, may need some more explaining.

Let's have a sample of fully documented mainstream doomsterism. First this from Samuelson:

Since the early 1980s, American economic growth has depended on a steady rise in consumer spending supported by more debt and increasing asset prices (stocks, homes). Just as the mid-1980s signaled the end of Japan's export-led growth, the present U.S. slump signals the end of upbeat, consumption-led growth. But its legacy is an overbuilt and overemployed consumption sector, from car dealers to malls. The question is whether our system is adaptive enough to create new sources of growth to fill the void left by retreating shoppers.

And then this from Krugman:

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom. Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

Just a sample, and not of wild men like Kunstler or Orlov: these are Samuelson and Krugman talking, but they are talking real pain.

This incipiant pain reminds me of my favorite quote from Spike Milligan's legendary BBC radio, "The Goon Show",

(horrible, blood curdling scream in off) ARRRRRRRRRRRRRRGGGH!

Spike: "Listen, someone is screaming in agony... fortunately I speak it fluently."

I don't know if I'm alone in this, but almost everything important that I have ever learned in my now long-toothed life has been won with certain pain. I associate intense discomfort with the acquisition of valued knowledge. Mind you, I don't find suffering "redeeming" or even pleasurable, only instructive.

The elite School of Hard Knocks is finally opening its ivy clad halls to America's core, its heart: the great American middle class.

Both Samuelson and Krugman fear a coming "lost decade", however, instead of a "lost" decade, I see a the possibility of a decade of discovery, of restless interrogation, of world transforming consciousness. For the American middle class and its docile belief in its methods, myths and heroes is both the first victim and the principal instrument, the cutting edge, of the system and its failure. These bland, well meaning people are the vanguard. For the world to ever change they must change first.

I am exhilarated by the prospect of white bread, middle class, "normal" Americans finally beginning to seriously question their system. By this I mean Americans asking the same kind of questions that South Americans, for example, often ask themselves: "I am a hard worker and the land I live in is rich in raw materials of every kind... why am I poor?" And the white bread gringos finally coming to the same conclusion that our Latin cousins came to long ago: "because a infinitesimally tiny minority of the population, an astronomically wealthy few, who couldn't care less whether I or my children live or die, has arranged the world and its commerce and institutions entirely to their own benefit".

If it takes the American middle class ten years of being put through the jumps just to metabolize that, it will be a decade well spent, one whose praises their children and their children's children and the whole world will happily sing. For this is knowledge that has been in the possession of not just South Americans, but most of our planet's inhabitants for centuries untold. However, the day that middle class Americans, with tears and travail acquire it... the world will finally change. That is if they don't turn to fascism first, of course. DS

Nobody knows you when you are down and out

David Seaton's News Links
If you wanted to express the full meaning of the present situation in tight lipped, grim fashion, this might be it. The new director of America's national intelligence, Dennis C. Blair, expressed concern about long-term harm to America’s reputation. The crisis that began in American markets has already “increased questioning of U.S. stewardship of the global economy”

Since the end of the Second World War the United States has been the guarantor of the world's market economy, which since the fall of the Soviet Union is the only "world economy". Almost all, if not all, of the world's raw materials are priced in dollars which only the United States can print. This has meant, roughly, that the United States could go into the world's "supermarket" and pay with IOUs, redeemable with... more IOUs.

It is impossible to exaggerate the benefits that most Americans have derived from the US being able to write the rules of the game in its own behalf. At his moment, the "too big to fail" and "the only game in town" factors are literally the only things that are keeping a hollowed out American economy still on its feet.

Here is how it works: Luo Ping, a director-general at the China Banking Regulatory Commission, said that China would continue to buy Treasuries in spite of its misgivings about US finances: “We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do. Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.” So we see that the ultimate repository of value, "the only option", the US dollar, that is a "fiat currency", meaning that there is nothing behind it except the reputation of the issuer, is increasingly being viewed as "funny money". This is the slipperiest of all possible slippery slopes.

This has only worked till now because the world has believed (imagined?) that the USA was a "serious" country. That has all changed in only a few months. Now the United States, to use the words of a great American, has "screwed up"... big time. The American financial system, the core of the world financial system, has proved to be an enormous, fraudulent pyramid. Bernard L. Madoff's face, not George Washington's, should be on the dollar bill.

This will be the most important, long term effect of this crisis on the lives of Americans and it will be for generations to come, to the same extent that America's financial centrality has splendidly benefited preceding generations.

The bottom line might be:

"Ye are the salt of the earth: but if the salt hath lost his savour, wherewith shall it be salted? it is thenceforth good for nothing, but to be cast out, and to be trodden under foot of men." Matthew 5:13

You can bet that at this very moment some of the finest financial minds in the world are trying to figure out how to escape from the grip of the toxic dollar without bringing the entire shebang down on their heads.

When they hit upon a solution, this will mean that Americans will have to find something else than dollars to pay their debts with, just as today the Argentinians have to change their shaky pesos into dollars to pay their debts: which is something that has impoverished what was once one of the world's most prosperous nations and made their legendary standard of living a haunting memory.

In short, what was not long ago America's most powerful instrument, its currency's universal value, is now its greatest vulnerability and a string that its rivals will use to pull and jerk it around with at will.

Americans are a very proud people. I cannot predict how they may react to this sudden loss of wealth, standard of living, self-respect and reputation, but I doubt if it will be pleasant. DS

No fault decoupling

World economic growth is set to fall to just 0.5% this year, its lowest rate since World War II, warns the International Monetary Fund (IMF). BBC News

David Seaton's News Links
The most singular feature of the present recession is that it is universal... the entire world is experiencing recession simultaneously.

The crisis has its origins in America's surreal real estate bubble and Wall Street's shenanigans and most informed observers, seeing it coming, expected the world to decouple and continue to grow, thus quickly pulling the US out of the slump. But since globalization is basically the invention of American multinationals, and the dollar, although a fiat currency, is the universal store of value and trading tool, the world could not decouple. That means that the United States has pulled the whole world down into what could be an epoch making catastrophe.

It appears that very few people have understood the full portent of that. As Maureen Dowd puts it:

The former masters of the universe don’t seem to fully comprehend that their universe has crumbled and, thanks to them, so has ours. Real people are losing real jobs at Caterpillar, Home Depot and Sprint Nextel; these and other companies announced on Monday that they would cut more than 75,000 jobs in the U.S. and around the world, as consumer confidence and home prices swan-dived.

The world could not decouple and they probably had never seriously thought about having to decouple before and perhaps the most important thing is that today they are thinking about it. "Gee wouldn't it be nice not to be dragged down into the pit by what appears to be mass American criminality, institutionally aided and abetted".

That a recession that may destroy the prosperity of hundreds of millions, perhaps billions of people, all over the world, has been brought on by frivolous larceny is hard to forgive and harder to forget.

Now, at this very moment, a lot of very intelligent people, all over the world, are rolling the idea of decoupling around in their minds -- disaster often makes people creative -- and before too long somebody will come up with something. They will not want to go down this path ever again.

Except for some movie stars, divorce is not something that happens from one day to the next. Most people suffer quite a lot before breaking a home, and even when the decision is taken, it is rarely simultaneous and one of the couple about to decouple (the one about to be left) is usually surprised and often in denial. I think that is the case of American policy makers right now.

The phrase, "We are ready to lead!", sounds a lot to me like, "honey, we can work this out". DS

On a wing and a prayer: a course in miracles

La Virgen del Rocio

One night a jet airliner explodes at 30,000 feet over the Atlantic and all alone, one passenger, strapped into his seat, finds himself falling like a stone out of the sky from amidst the flaming wreckage.

"Saint Francis save me!" he cries out in anguish.

Suddenly he finds himself suspended in the air some 20,000 feet over the moonlit ocean. "Oh thank you Saint Francis!" he exclaims, his heart overflowing with gratitude.

Out of the darkness of the night a deep voice asks him, "Is that Saint Francis of Assisi or Saint Francis Xavier?".

We leave him thinking over his reply.

David Seaton's News Links
Yesterday I compared Obama's inauguration to the Spanish custom of parading images of the Virgin Mary around the street of parched villages to break severe droughts. I must assure readers that I meant no disrespect to Our Lady by this, only indicating the faith and fervor of the devotees gathered in Washington.

Although I am no longer a Catholic, if I ever really was one, I have, since I was a tiny child, an enormous and awed affection for and devotion to Mary. In any tight spot I would be most likely to mutter a Hail Mary, probably proceeded by a "Bismallah" and with a hearty "Hari Ram" for a chaser. I am ecumenically superstitious to a fault and fully understand and empathize with those faithful who packed the Mall in Washington yesterday.

However, this business of begging the intervention of Saints is a complicated affair: if done correctly it has often proven to be very efficient, but if not carried out with full attention to important details it will mostly prove entirely useless. The failure of most petitions can be laid to this sort of error of form and objective.

Heaven is apparently a very busy place with an immense and overworked bureaucracy composed of masses of venerable thisis and blessed thats led by a fast growing multitude of full saints, all of them with their own special, but often overlapping, areas of responsibility and multitasking to distraction, with no time to lose... and like the fellow in the story above, woe be to he that gets the address of his petition wrong.

Take for example the crisis in the American banking sector, most of whose members are now being described by experts as "zombie banks".

Who to pray to?

Spanish banks are under the patronage of Saint Charles of Borromeo, whose day, the fourth of November, is a holiday for all bank employees in the country. His patronage and protection must be most efficacious, as Spanish banks have proven to be the world's least affected by the crisis and in most cases are still highly profitable. However, it doesn't seem that Saint Charles of Borromeo protects banks of any other country than Spain. More's the pity.

Most ecclesiastical authorities that I have consulted favor the apostle Saint Matthew as the patron of bankers by default, as tax collecting was his daytime job. However as an apostle I would imagine that he might be too busy to pencil in the American crisis as Americans are very reluctant to pay taxes or to frequent tax collectors either.

There is an interesting alternative saint, one who may be, in actual fact, already on the case. This holy personage is well known as the patron saint of sailors but also has been known to intervene on behalf of pawnbrokers, prisoners and unmarried women, and yes, bankers too. This versatile and multifaceted saint is none other than Saint Nicholas, better known to most Americans as -- yes, you guessed it -- Santa Claus!

I think that the bailout of the financial sector already has this saint's fingerprints all over it. And from what I am reading about the new stimulus plan it seems sure that President Obama, better his wonders to perform, is placing himself and America's bankers under the protection and patronage of Saint Nicholas too.

Of course Americans have always worshiped Saint Nicolas and all his works with a fervor unmatched in all the world and it can be said that no other people in the world have put more faith, belief and trust in this saint.

Some scoffers of little faith may say that America's devotion to Saint Nicholas is the cause of all her troubles, but I am sure that he wont let America or Obama down in our hour of need. DS