Reliving the tragic 1930s... this time as farce

"The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear." Antonio Gramsci

“Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.”  Karl Marx, The Eighteenth Brumaire of Louis Bonaparte  

Most newsaholics tend to limit their reading to people they agree with... I think that is a big mistake, especially for anyone who is trying to make a serious analysis of reality. Why? Because it's always interesting, instructive... and creatively disturbing when you find that someone you detest is saying something that makes a lot of sense.

For example, an arch-villain of any progressive citizen, Charles Koch, (yes one of the brothers who are busy corrupting the entire US democracy in order to discredit climate science), is here found talking much sense about the "War on Terror":

“We have been doing this for a dozen years. We invaded Afghanistan. We invaded Iraq. Has that made us safer? Has that made the world safer? It seems like we’re more worried about it now than we were then, so we need to examine these strategies.” (...) “I’ve studied revolutionaries a lot,” he says. “Mao said that the people are the sea in which the revolutionary swims. Not that we don’t need to defend ourselves and have better intelligence and all that, but how do we create an unfriendly sea for the terrorists in the Muslim communities? We haven’t done a good job of that.” With about 1.6bn Muslims worldwide “in country after country. What,” he asks, “are we going to do: go bomb each one of them?". Lunch with Charles Koch - Financial Times

Koch quotes Chairman Mao! How is that for chutzpah?

In an odd sort of way Koch practices what he preaches; for example by trying to create an "unfriendly sea" for ecologists and climate scientists in America's mainstream media and the US Congress. Having said that, what he affirms in the quote above is one of the most sensible thing that I can remember having read about America's "War on Terror". It will be interesting to see how the Koch brothers, with all their oil interests, will react if Muslim-baiter, Donald Trump, is finally the Republican nominee.

...Morbid symptoms appear

There are reputable analysts who today are predicting a worse recession than 2008.

For example: if  Lehman Brothers' collapse  in 2008 was 1929's tragedy repeated as farce, where we are moving right now could be seen as a priapistic version of the same thing.  

Three of the biggest US banks revealed the damage wrought by a plunging oil price this week, disclosing big jumps in costs for bad energy loans and fears of contagion in other portfolios. Financial Times

Cleaning up the aftermath of financial mistakes — a depressingly familiar experience — is just a part of the challenge the world confronts. Equally important is finding a powerful new engine of demand as old ones splutter and die. It is not at all obvious where this is to be found. But the rest of the world is hoping, probably over-optimistically, that the US will provide what it seeks. Unfortunately, it will not do so.  Martin Wolf - Financial Times

We seem to have come to a dead end.

There has always been a tension at the heart of capitalism. (...) Its self-regulating properties, contrary to the efforts of generations of economists trying to prove otherwise, are weak.(...) A low oil price historically presages economic good times. Instead, the markets are panicking. They are panicking because what is driving the lower oil price is global disorder, which capitalism is powerless to correct. Indeed, it is capitalism running amok that is one of the reasons for the disorder. Profits as a share of national income in Britain and the US touch all-time highs; wages touch an all-time low as the power of organized labor diminishes and the gig economy of short-term contracts takes hold.(...) All this requires a new generation of political leaders prepared to throw off the categories in which thinking has been cast since 1980(...).  Will Hutton - The Guardian

The Unborn

Another commentator who is often worth reading, despite being even further to the right than the Koch brothers is Pat Buchanan. He is a paleolithic-conservative, pre-conciliar Catholic and the adviser behind Nixon's "Southern Strategy", which has probably been the most noxiously successful and sinister political ploy since the disenfranchisement of African-Americans ending Reconstruction.

To give you an idea of how far to the right Buchanan is, none other than Donald Trump (way back in the 1990s) considered him a "Nazi-whacko".

This is how Pat Buchanan sums up the present situation:

Everyone sees clearly now the de-industrialization of America, the cost in blood and treasure from decade-long wars in Afghanistan and Iraq, and the pervasive presence of illegal immigrants. (...) (W)hen you see Bernie Sanders running neck and neck with Hillary Clinton in Iowa and New Hampshire and Trump and Ted Cruz with a majority of Republican voters. Not to put too fine a point on it, the revolution is at hand. Pat Buchanan - Washington Post

What is Trump's reaction to Pat Buchanan in 2016?

Donald J. Trump 
‏@realDonaldTrump
Pat Buchanan gave a fantastic interview this morning on @CNN - way to go Pat, way ahead of your time!

How is that for chutzpah?

What is interesting for me in the Buchanan quote above is that he groups both Sanders and Trump as "revolutionaries". The old is dying and the new is yet unborn.

Lets hear from Bernie:

“If poverty is increasing and if wages are going down, I don’t know why we need millions of people to be coming into this country as guest workers who will work for lower wages than American workers and drive wages down even lower than they are now,” Sanders said in a television interview in June 2007. But in his current campaign for president, Sanders has been unequivocally in favor of a path to citizenship for undocumented immigrants, and he has spoken passionately on protecting families from deportation. Many immigration activists note that Sanders’ plan is more detailed than Hillary Clinton’s. Time Magazine

What we see here from Sanders is nuance: recognizing that massive third world immigration is a huge problem for underpaid American workers and at the same time compassion and practical solutions for the problems of the immigrants already in the USA, who are also helpless, innocent, victims of the globalization process.

And now here's Trump's official position on immigration:

When politicians talk about “immigration reform” they mean: amnesty, cheap labor and open borders. The Schumer-Rubio immigration bill was nothing more than a giveaway to the corporate patrons who run both parties. Real immigration reform puts the needs of working people first – not wealthy globetrotting donors. We are the only country in the world whose immigration system puts the needs of other nations ahead of our own. Donald Trump's official webpage

Notice all the dog-whistle words: "amnesty", "cheap labor", "wealthy globetrotting donors" ("rootless cosmopolitans"?), "needs of other nations". That vocabulary and not the actual content is the real message

Now Sanders on China:

One of Bernie’s key goals is to end our disastrous trade policies with China which force American workers to compete against low-wage labor, which serves largely to benefit already wealthy corporations. Feel the Bern

Now Trump:

We have been too afraid to protect and advance American interests and to challenge China to live up to its obligations. We need smart negotiators who will serve the interests of American workers – not Wall Street insiders that want to move U.S. manufacturing and investment offshore. Donald Trump's official webpage

 Again, notice the word choice: "afraid",  "protect", "challenge", "live up to", "smart", "insiders", "offshore", etc.

Repetition?

At the top of the page I put: "History repeats itself, first as tragedy, then as farce"  and "The old is dying and the new cannot be born". Those two quotes could well define the historical period we live in.

Where Buchanan may be on to something is in calling both Trump and Sanders "revolutionaries"; revolutionaries in the same sense that both Adolf Hitler and Franklin D. Roosevelt were revolutionaries in the context of the 1930s,.

FDR changed the classic capitalism practiced by  the Republicans beyond recognition and saved America from the sort of turbulence that  tore Europe apart.

Hitler, on the other hand rode that turbulence to power and literally destroyed Germany and most of Europe with it.

Here is a definition of Hitler's method of taking power, from Adam Gopnik's New Yorker  piece on the new edition of Mein Kampf. See if you can observe a formula that is still in use:

"The faith in a strong man; the love of the exceptional character of one nation above all others; the selection of a helpless group to be hated, who can be blamed for feelings of national humiliation. He didn’t invent these arguments. He adapted them" 

Sound familiar? It should, it is being used every day and not just by Donald Trump, even nominal liberals have invoked "American exceptionalism" in recent memory to justify interfering in the internal affairs of other countries or even voting in favor of "wars of choice".

Rhyme or farce?

Back in the 1930s the Republican party's laissez faire, hands off, version of capitalism was finished (for the moment). The choice of a way forward then was between Hitler/Mussolini, Joseph Stalin... or FDR.

Now the Nazis and the fascisti are long gone and Stalin's Marxist-Leninism is on the ash heap.

Today the categories of "ists" and "isms" are different:  Now Russia's ruling ideology is Putinist-Hands-in-the-cookie-jar-ism, while China is following Friedmanist-Leninism and apparently is entering into some kind of a shitstorm with it.

Meanwhile the United States and all who sail in her seem to be experiencing a terminal crisis in the economic policies that have been in favor since the 1980s, which we might call Reaganist-Thatcherism or Clintonist-Blairist-Bushism.

However, this not the 1930s, Pope Francis is not Pius XII, Stalin is gone, with no one to follow. Donald Trump is a Monty Python parody of Adolph Hitler or Benito Mussolini, Hillary Clinton is not Herbert Hoover and Bernie Sanders is not (yet) Franklin Delano Roosevelt.

But, as Mark Twain said,"History does not repeat itself, but it often rhymes". This is the interregnum that Gramsci spoke of, with all its morbid symptoms, the old is dying... and the new, whatever that might be... Can it be born? DS

Nobody knows you when you're down and out

First it was the 2007 financial crisis. Then it became the 2008 financial crisis. Next it was the downturn of 2008-2009. Finally, in mid-2009, it was dubbed the “Great Recession.” And, with the business cycle’s shift onto an upward trajectory in late 2009, the world breathed a collective a sigh of relief. We would not, it was believed, have to move on to the next label, which would inevitably contain the dreaded D-word.(...) By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode “the Lesser Depression.”(...) A year and a half ago, those who expected a return by 2017 to the path of potential output – whatever that would be – estimated that the Great Recession would ultimately cost the North Atlantic economy about 80% of one year’s GDP, or $13 trillion, in lost production. If such a five-year recovery began now – a highly optimistic scenario – it would mean losses of about $20 trillion. If, as seems more likely, the economy performs over the next five years as it has for the last two, then takes another five years to recover, a massive $35 trillion worth of wealth would be lost. When do we admit that it is time to call what is happening by its true name? J. Bradford DeLong - Project Syndicate 

Once I lived the life of a millionaire,

Spent all my money, I didn’t care.

Took all my friends out for a mighty good time,

Buying high priced liquor , champagne and wine.

Then I began to fall so low,

Lost all my friends, had no nowhere to go.

If I ever get my hands on a dollar again,

I’ll hang on to it till that big eagle grins.

Because, nobody knows you

When you're down and out.

In your pocket, not one penny,

And as for friends, you don't have any.

"Nobody Knows You" - Traditional Blues

I wonder how much our economic stagnation is a major factor in the instability we are seeing in the Middle East and the Ukraine, etc, and not just our military "indecisiveness" and "war weariness"?  

Certainly the miserable performance of the economy is having a very destabilizing effect on the European Union with the emergence of parties on both the left and the right that want to leave the euro or even the EU itself, and I even wonder how much of a role it might play in America's political deadlock/paralysis?

No kidding, could things is far apart as Marine Le Pen, Podemos, Scottish independence, the Tea Party, UKIP and even the ISIS owe some of their success to the western world's, dead in the water, economy?

Certainly the principal charisma of our western societies since WWII has been their capacity to produce enormous wealth and to distribute it widely among our populations, who spen(d-t) it freely... Let's not kid ourselves, even the idea of "freedom" is directly connected to having enough money to exercise that freedom.

If our economy can't cut the mustard, what exactly are we selling? Where exactly are we intent on leading the rest of humanity?

I don't have the answer but I would like to hear more people asking the question.  DS

More on the bright side

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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

Looking on the bright side

People learn quickly. As Lenin recognized: they can learn in 20 days what they forgot in 20 years. Richard Gott - Guardian

When Confucius was asked what the first thing he would do if he were named Emperor was, he replied, "I would clarify the language".

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The longer I hang around on this planet, the more sense Confucian "clarification of language makes" to me.

Contemporary American English is especially treacherous in this regard. In the USA a lover may be known as a "significant other" or even as a "partner": as if all the rumpypumpy was happening in a law office or a hardware store. In this slippery dialect problems aren't called problems, they are called "issues" and child molestation is called "inappropriate behavior"... it goes on and on.

In the world of politics, the horror of plain speech, the effort to verbally cloud, obfuscate and confuse goes to truly Orwellian lengths. Thus, the world wide, historical and universal color of revolutionary socialism: red, is used in America to denominate reaction... as in "red state". So in contemporary American English a "red state" is not Cuba or Vietnam, it is Texas or Oklahoma. In Texas the song isn't "The East is Red", it's "The East is Blue".

So naturally, in the USA, this Alice-less wonderland, Marx, instead of being associated with the struggles of the working class, is much more likely to be associated with white wine and Camembert cheese: "elitism" is of course the word used to describe political agitation in favor the less fortunate. Thus certain otherwise extremely useful terms associated with Marx may sound a trifle exotic, indeed dangerous to most American ears.

Two terms that I'd like to fling carelessly around today are "use-value" and "exchange-value." Technically accurate definitions of these terms can be found here and here.

To bring home some of the intrinsic meaning contained in these concepts and to make them more "real", I would give the following example. Imagine you are a graduate engineer, who speaks four languages with an MBA from Harvard. You are a hard worker with many skills and much knowledge, all of which may be very useful to yourself or to friends and family or to anyone who comes up and asks you, solving problems and devising strategies to improve the quality of life. This might be a loose definition of your use-value, just as the walls and the roof of your house keep out the wind and the rain and give you shelter and home, which is its basic use-value.

However, until you take your skills or your house to the market and try to sell them, they have no "exchange-value". They will acquire that value and become a commodity when they are exchanged for a "universal medium of exchange" (read money). In the well oiled, smoothly functioning capitalist system that the United States embodies as no other, the conversion of "use" to "exchange" is normally so fluid, so automatic, that many may have spent their whole lives confusing the two and thinking that something that isn't a commodity, which cannot be exchanged for money, has no value, is of no use... useless.

This automatic identification of usefulness and exchange-value tends to fray in a depression. You as a graduate engineer with an MBA may find yourself out of work with few immediate prospects of finding any. You know you are still a useful person, but now you have no exchange value because the system finds you useless. The collapse of the financial system and with it much of the the power to exchange means that many people are going to find themselves in the place of our imaginary engineer or are already there. When the system of exchange breaks down the useful - people and things - become useless. Useless houses rot and so do useless people: for people this is painful. When you begin to feel useless the system is destroying you.

In 2002, when the following text by Slovenian philosopher Slavoj Zizek was written, many who stumbled upon it would have dismissed it as so much elitist mumbo jumbo. Read in the light of the present deepening crisis, its relevance jumps out at the reader. Just in case some readers find it a little heavy going, I have taken the liberty of highlighting some of Zizek's words in boldface. Adjusting for the jargon and the technocisms, try this on for size:

"Marx located the elementary capitalist antagonism between use- and exchange value: in capitalism, the potentials of this opposition are fully realized, the domain of exchange value acquires autonomy, is transformed into the specter of self-propelling speculative capital which uses the productive capacities and needs of actual people only as its dispensable temporal embodiment. Marx derived the very notion of economic crisis from this gap: a crisis occurs when reality catches up with the illusory self-generating mirage of money begetting more money- this speculative madness cannot go on indefinitely; it has to explode in ever stronger crises. The ultimate root of the crisis for Marx, is the gap between use-value and exchange value: the logic of exchange value follows its own path, its own mad dance, irrespective of the real needs of real people." Salvoj Zizek - Revolution at the Gates

So that is the situation we are presently facing. People who know how to work hard and love to work hard will have no work. Powerful machines will sit idle and rust and so will powerful minds and hearts.

There is a bright side to all of this: lucidity has its price, but once acquired it is priceless. Perhaps Americans will finally learn again to call things by their real names. DS

Get set

The panic in global financial markets has sparked an unprecedented rush into safe US Treasury securities, driving yields on short-term government notes down to almost zero.(...) The low yields reflect a surge in demand for these instruments, seen as the safest in the world during times of turmoil.(...) Analysts say the fear factor has pushed up demand for Treasuries, since investors are virtually certain the US government will not default.(...) Bob Eisenbeis, analyst at Cumberland Advisors, said the unprecedented low yields are a sign of "dysfunction" in markets. Eisenbeis said US municipal bonds are paying upwards of 6.0 percent tax-free and corporate bonds even more, but that fears of default and a lack of knowledge about underlying bond quality have led investors to shun these alternatives. One reason for the surge in demand for Treasuries, said Eisenbeis, is the Federal Reserve's decision to flood financial markets with liquidity including through other central banks. Many central banks and commercial banks are reluctant to use this cash for traditional lending, and are buying Treasuries to ride out the storm, Eisenbeis added. A big question for the market is whether the Treasury market has become a bubble that will burst. Although the low rates allow Washington to borrow money cheaply, Eisenbeis said such a scenario could be perilous for the economy and the dollar.(...) "There are lots of reasons to believe this Treasury rally is unsustainable, and that a day of reckoning is fast approaching," he said. "When you have this huge flood of liquidity into the marketplace, that can't last forever," he said. A bursting of this bubble could mean a rush out of Treasuries, forcing the government to pay higher rates on an unprecedented amount of debt. (...) Mike Larson, an analyst at Weiss Research, says the long-term bond market could be "the biggest bubble of all," worse than the dot-com and real estate bubbles.(...)"Treasury bonds almost never move this far, this fast. And interest rates, which move in the opposite direction of bond prices, almost never fall this far, this fast," Larson said. (emphasis mine) AFP

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One of the most interesting things about the decline of the American empire is that not only are the broad outlines familiar to most of the world's educated inhabitants, but even many of the details are too: details that in any other culture would be private "family" stories. That way we can use the English language and the American situation as a universal parable or mythology when broadly discussing the human condition.

Some readers of mine ask me for Spanish stories and, when I can, I am happy to oblige. The problem with doing this in an English language blog is having to provide masses of context about situations that most readers are not too familiar with.

However today there is a Spanish story that most Americans can appreciate.

As some of you may already know Spain's real estate bubble is one of the few that can rival America's and it is also deflating spectacularly.

Here is an item from an English language review of the Spanish press about Spain's second largest real estate developer, Martinsa-Fadesa:

El País notes today that the Martinsa real estate company overvalued the worth of its land by up to 19,000%. The paper claims that the company ended 2007 with profits because of these accounting irregularities, and gives as an example some land in Las Palmas worth a million € in their accounts, but valued at 179 million. A plot in A Coruña sold for 1.5 million appeared in the accounts with a value of 84 million.

That, in a nutshell is what this universal crisis in all about: cooked books, hidden debt, assets whose true value is unknown and perhaps unknowable. This has been going on at every level until value itself has become impossible to determine and wealth is frantically looking for someplace safe to hide.

We are now living through a gigantic spasm, perhaps another birth pang, perhaps the final death throes, of what Naomi Klein calls "Disaster Capitalism": the legacy of Milton Friedman.

What was once the proud ship of Marget Thatcher and Ronald Reagan, the SS Milton Friedman, for decades a powerful intellectual movement, is now sinking in a tragic farce of unregulated larceny. Viewed from outer space it must be a barrel of laughs.

When we look at economic news though, it is important to put them immediately into a human perspective. Here is some interesting context:

As jobless numbers reach levels not seen in 25 years, another crisis is unfolding for millions of people who lost their health insurance along with their jobs, joining the ranks of the uninsured. (...) Starla D. Darling, 27, was pregnant when she learned that her insurance coverage was about to end. She rushed to the hospital, took a medication to induce labor and then had an emergency Caesarean section, in the hope that her Blue Cross and Blue Shield plan would pay for the delivery. Wendy R. Carter, 41, who recently lost her job and her health benefits, is struggling to pay $12,942 in bills for a partial hysterectomy at a local hospital. Her daughter, Betsy A. Carter, 19, has pain in her lower right jaw, where a wisdom tooth is growing in. But she has not seen a dentist because she has no health insurance.(...) About 10.3 million Americans were unemployed in November, according to the Bureau of Labor Statistics. The number of unemployed has increased by 2.8 million, or 36 percent, since January of this year, and by 4.3 million, or 71 percent, since January 2001. Most people are covered through the workplace, so when they lose their jobs, they lose their health benefits. On average, for each jobless worker who has lost insurance, at least one child or spouse covered under the same policy has also lost protection, public health experts said.(...) Nearly 4.4 million people are receiving unemployment insurance benefits, an increase of 60 percent in the past year. But more than half of unemployed workers are not receiving help because they do not qualify or have exhausted their benefits. About 1.7 million families receive cash under the main federal-state welfare program, little changed from a year earlier. Welfare serves about 4 of 10 eligible families and fewer than one in four poor children. New York Times

___________

An increasing number of people who retired in recent years, confident they had set aside enough to live on comfortably, are finding themselves strapped. The stock market plunge and the housing downturn have affected many Americans, of course. But retirees have been particularly pinched because their homes and investments are the primary assets they depend on for income. As a result, many of the country's elderly are finding themselves in Nelson's situation, low on money and looking for work. "Suddenly the rug has been pulled out from under them," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Business Week

_______________

Workers who got three days' notice their factory was shutting its doors voted to occupy the building and said Saturday they won't go home without assurances they'll get severance and vacation pay they say they are owed. (...)In the second day of a sit-in on the factory floor that began Friday, about 200 union workers occupied the building in shifts while union leaders outside criticized a Wall Street bailout they say is leaving laborers behind.(...) Organizers of the action said the company can't pay employees because its creditor, Charlotte, N.C.-based Bank of America, won't let them.(...) Bank of America received $25 billion from the government's financial bailout package. "Across cultures, religions, union and nonunion, we all say this bailout was a shame," said Richard Berg, president of Teamsters Local 743. "If this bailout should go to anything, it should go to the workers of this country." Outside the plant, protesters wore stickers and carried signs that said, "You got bailed out, we got sold out." CBS2-Chicago

So, in the snippet from AFP that opens this post we see that US treasury bonds may constitute a bubble greater than the real estate or the Internet bubbles. We may surmise that a collapse of their value would have consequences far greater than those bubbles bursting have. Among those consequences might be hyperinflation and the subsequent pauperization of all Americans except the very, very rich.

The hardships portrayed in the snippets from the Times and from Business Week would multiply exponentially and the frequency of the actions that CBS2 Chicago writes about would multiply with them in lockstep. What are now isolated incidents could become an ungovernable cauldron in a very short time if the great mass of Americans were instantly pauperized as happened recently in Argentina.

Larissa MacFarquhar has written a "must read" profile of Naomi Klein in the current New Yorker. The following snippet may give an idea where the USA is headed right now:

The only time (Naomi Klein) has ever felt a whiff of utopia was in Buenos Aires, in 2002, when the political system had virtually disintegrated—during the time that she and Lewis were filming “The Take.” “That moment in Argentina was an incredible time because a vacuum opened up,” she says. “They had thrown out four Presidents in two weeks, and they had no idea what to do. Every institution was in crisis. The politicians were hiding in their homes. When they came out, housewives attacked them with brooms. And, walking around Buenos Aires at night, there were meetings on every other street corner. Every plaza where there was a streetlight, people were meeting under it and talking about what to do about the external debt, I swear to God. Groups of one hundred or five hundred people. And organizing buying groceries together because they could get cheaper prices, setting up barters because the currency was worthless. It was the most inspiring thing I’ve ever seen.”

If the 20th century has any lessons to teach us, it is that sort of scenario we see laid out clearly before us leads to massive social unrest and upheaval: if not properly managed it can be the classic yeast culture that every apprentice fascist dreams of.

Probably the left's greatest task in the coming months and years is steering this convulsion toward peace and solidarity and away from the temptations of war and mob violence. DS

Next stop: Weimar America?

"That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash." Thomas Friedman - NYT

“Excessively cheap money in the US was a driver of today’s crisis,” (Angela Merkel, the German chancellor) told the German parliament. “I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.” - Financial Times

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A link at Doonesbury led me to the following, fascinating, information:

Big Bailouts, Bigger Bucks - The Big Picture
(...)If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let's give this some context. The current Credit Crisis bailout is now the largest outlay In American history. Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures - combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

If a currency is supposed to have any relation to actual value, when I see these numbers it seems obvious to me that the dollar is entering the territory of the Wiemar Republic Deutsche Mark: meaningless paper.

The fear, of course is deflation, but a dollar that once bought victory in WWII and trips to the Moon, but today cannot save a few banks, must be a ticket to coming hyperinflation.

It is impossible to escape certain unpleasant realities of world power

No matter how seductive the figure of Barack Obama might be, glamor cannot offset the drag of worthless money combined with military impotence.

Joseph Nye's "soft power" is just that "soft". The brutal truth is that candy and flowers, a thoughtful word, are important rites of seduction, but after these rites are performed, something hard is expected. If the USA cannot "cut the mustard", other, perhaps ruder suitors will be sought and found.

To me these numbers mean that we are living suspended over an abyss, held only in the slippery hands of a fraudulent system. DS

My mini epiphany

David Seaton's News Links
As anyone who has read my posts over the last few months can testify, I have been notably unenthusiastic and irritated by Obama worship. I have been called "Mr. Wet Blanket", the "glass half empty" guy, and decorated with other much less flattering labels that have been pinned on me as I tried to point out how precarious were the foundations upon which this new church was built. But today reading the news I had a little epiphany and suddenly my heart melted and I was filled with warm compassion for the Obamite devotees as they adored at The One's Lotus Feet.

I was reading the blog of the prophetic professor Roubini, a voice that once cried out in the wilderness, preaching repentance and doom and who now is a talk show favorite. He is an enthusiastic fan of Obama's proposed economic team, but here is his take on the situation they will confront:

I have also to add that – as I argued in an interview with CNBC Monday morning - while I have the greatest respect for the new Obama economic team, they will inherit a huge economic and financial mess that will be extremely hard to fix even if they were to implement the most sound and consistent economic and financial policy package. This is going to be the worst US recession in decades as the strapped US consumer is now faltering. The recession train and the financial crisis train have left the station. What policy can do – at best – is to minimize the financial and economic losses and limit the extent and severity and length of the economic and financial crisis, not to prevent it. President Elect Obama and his top notch team will inherit two wars and the worst economic and financial crisis in decades. So expect very difficult times ahead for the economy and for financial markets regardless of the best effort of Obama’s excellent economic team in trying to address these problems. Even a massive fiscal stimulus, a more rapid and coherent plan to recapitalize financial institutions and resolve the credit crunch, an aggressive plan to reduce the debt burden of insolvent household, and more aggressive and radical set of unorthodox monetary policies will not prevent a global stag-deflation in 2009 and possibly longer.

Then seeking some relief from Roubini's prognosis, I opened the Washington Post and stumbled upon this column by Robert J. Samuelson:

What terrifies Americans is the prospect that the slump will become much worse than average -- and that the government has lost control of events. (...) Perhaps Barack Obama will change that, but so far, government officials, business leaders and economists seem overwhelmed. They're constantly playing catch-up and losing. Americans feel unprotected against accumulating misfortune. The hyper-anxiety is not irrational pessimism, though it may prove unfounded. Every major episode of this crisis -- from Bear Stearns's failure to General Motors' possible bankruptcy -- has come as a surprise. Similarly, the crisis's three main causes have repeatedly been underestimated: the burst housing "bubble"; fragile financial institutions; and a reversal of the "wealth effect." Of these, the last is least recognized.(...) But now the wealth effect is reversing. (...) Since September 2007, Americans' personal wealth has dropped about $9 trillion, says economist Nigel Gault of IHS Global Insight. (...) If the swing toward saving is too sharp, consumer spending wouldn't just weaken; it would collapse. (...) And these problems feed on each other. Lower consumer spending depresses profits and stock prices, which corrodes confidence, further dampens spending, raises unemployment and increases loan defaults. Credit card losses could be the next big blow to financial institutions.
The case for a sizable economic "stimulus" package is that it would temporarily compensate for the erosion of consumer spending. But if the positive "wealth effect" is now giving way to a lasting negative or neutral "wealth effect" -- as people try to replenish savings and offset lost wealth -- then even a recovery would be sluggish. A new source of demand is needed to sustain faster growth. An obvious solution is for high-saving Asian countries, led by China, to consume and spend more so that their imports increase. Whether they have the political capacity to reduce their dependence on export-led growth is unclear.

Yesterday I quoted Fareed Zakaria on the Chinese:

In September, Beijing became America's largest foreign creditor, surpassing Japan, which no longer buys large amounts of American Treasury notes. In fact, though the Treasury Department does not keep records of American bondholders, it is virtually certain that, holding 10 percent of all U.S. public debt, the government of the People's Republic of China has become Washington's largest creditor, foreign or domestic. It is America's banker.

To Zakaria I tacked on this jewel from the classic Chinese wiseguy's handbook, "The Thirty Six Strategies":

圍魏救趙
Besiege Wèi to rescue Zhào (Thirty Six Strategies - 2)
When the enemy is too strong to be attacked directly, then attack something he holds dear. Know that he cannot be superior in all things. Somewhere there is a gap in the armor, a weakness that can be attacked instead.

All this flotsam and jetsam swirled around in my consciousness until suddenly the dam broke and compassion welled up in my flinty, shrunken heart. How could I laugh at something like William Greider wrote in The Nation:

His victory, it appears, was a triumph for the cautious center-right politics that has described the Democratic party for several decades. Those of us who expected more were duped, not so much by Obama but by our own wishful thinking.

To criticize the Obamites suddenly seemed to my opened consciousness like making fun of a cancer patient that desperately clutches to his rosary beads between spasms.

The famous words of a great American echoed in my repentant brain:

"Basically, I'm for anything that gets you through the night - be it prayer, tranquilizers or a bottle of Jack Daniels."

Or Barack Obama.... Amen. DS

From NATO to ONAN

Subtle metaphor of the current American political discourse

David Seaton's News Links

The American presidential campaign is talking about everything but the central question facing the United States: it's rapid decline as the world's hegemonic superpower and the enormous dangers facing the United States and the world if America tries to maintain that fading hegemony.

This "primary contradiction", which could cause millions of lives to be lost and result in unimaginable chaos and impoverishment, is ignored except, perhaps, when presidential candidates suggest increasing military spending or promise to reassert American "leadership".

Both "solutions" are like a terminal cancer patient planning next year's summer vacation. An insane waste of precious time.

Today, I've posted excerpts from two important articles on this theme by John Gray, emeritus professor of European thought at the London School of Economics and my favorite political commentator, William Pfaff.

Please read them very carefully and be prepared to discuss:)

We are back to great-power politics, shifting alliances and spheres of influence. The difference is that the west is no longer in charge. With their different histories and sometimes sharply conflicting interests, Russia, China, India and the Gulf states are not going to form any kind of bloc. But it is these countries that are shaping world development at the start of the 21st century. The US - its bankrupt mortgage institutions nationalised and its gigantic war machine effectively funded by foreign borrowing - is in steep decline. With its financial system in the worst mess since the 1930s, the west's ability to shape events is dwindling by the day. Sermonizing about "law-based international relations" is laughable after Iraq, and at bottom not much more than nostalgia for a vanished hegemony. Deluded about its true place in the world, the west underestimates the risks of intervening in Russia's near abroad. Russia's weaknesses - demographic decline, cronyism in the economy and a seething sense of national humiliation - are well known, but western vulnerabilities are no less real. Our leaders bore on about Russia needing us as much as we need Russia. In fact, despite a recent blip, investment in Russia is a byproduct of the global market that will continue for as long as it continues to be profitable, whereas Russian energy supplies can be curtailed at will by the Russian government. Economists will tell you the country is too reliant on oil. But the world's oil reserves are peaking while globalisation continues to advance, and Russia stands to gain from any international conflict in which supplies are disrupted. Again, the west needs Russia if the Iranian nuclear crisis is ever to be defused peacefully, and without Russian logistical cooperation Nato forces will find it even harder to bring the aimless, unwinnable war in Afghanistan to any kind of conclusion.(...) Clearly, with the exception of some in "old Europe", our leaders do not know what they are doing. The grandstanding of David Miliband and David Cameron in Ukraine illustrates the point. Blathering about national self-determination and territorial integrity, they seem not to have noticed that the two principles are normally incompatible. Self-determination means secession and the break-up of states. In the Caucasus, a region of multi-sided national enmities, it means a wider war and worsening ethnic cleansing. The stakes are even higher in Ukraine. Deeply divided and with a major Russian naval base in the Crimean port of Sevastopol, the new state will surely be torn apart if an attempt is made to wrench it from Russia's sphere of influence. The country would become a battlefield, with the great powers irresistibly drawn in. Playing with Wilsonian notions of self-determination in these conditions is courting disaster. John Gray - Guardian

__________________

The United States has been invading troublesome Caribbean and Central American neighbors since the mid-19th century. It was what the U.S. Marine Corps did for a living – Cuba, Haiti, the Dominican Republic. Ronald Reagan absurdly invaded Granada, officially to save American students from dangerous Cuban airport laborers. The senior George Bush invaded Panama to seize President Manuel Noriega, a former employee of the CIA. It has never been explained what those two invasions were really about. There were (widely publicized) clandestine operations in Nicaragua and El Salvador. All this has been taken for granted as the Monroe Doctrine at work.(...) Today the world’s only expansionist ideological power is the United States, aggressively pushing everywhere, persuading, promoting, and even invading countries for “democracy.” It wants to make everyone democratic “like us,” which in the end means to do as we want them to do. The ideology is meant to be generous, but it is a generosity devoted to the control of energy resources, raw materials, trade, and finance. This makes the U.S. the expanding and aggressive nation in the world today, the one with a “global ideology,” with military power to back it up. This frightens people. When the power doesn’t work as intended, as in the Caucasus, it makes other people frightened, the ones who have bet on the U.S. to advance their own agendas. That is what is changing the geopolitical map. William Pfaff

Meanwhile the American voters play with their dollies. DS

Shake your booty! What, no booty left?

"This is by far the worst financial crisis since the Great Depression" Nouriel Roubini

"A total collapse of the US financial system, while not inevitable, is a contingency which should now be planned for." Martin Hutchinson, Prudent Bear

David Seaton's News Links
There is a lot of talk these days about the role of humor in American politics; whether or not a candidate is a suitable butt for jokes, whether or not they can "laugh at themselves" and so on and so on. Whether or not humor is "appropriate".

The American national pastime of navel gazing aside, whoever the next president of the United States is, he should, without delay, get fitted out for an getup like the fellow in the photo is wearing... make up and all. Because that is going to be the role of the next POTUS on the world stage in the foreseeable future.

Losing two wars is something the world can chalk off to youthful folly, people seem ready to forgive and forget unprovoked invasions and the deaths and torture of hundreds of thousands of human beings; but destroying the livelihood of millions of people around the world though ideologically driven, financial frivolity is a little harder to swallow. They are going to resent it.

Whatever the world looks like in 2012, it's going to look as different from today as the world looked after the fall of the Berlin Wall.

If I were the next president of the US, I would try to inspire the people with a ringing speech.

My fellow Americans (pause): This is the time (pause, with meaningful gaze into the middle distance) This is the time (pause) for the American people... (pause) to dig deep into the wellsprings and treasures of our popular culture (long pause) to dig deep into our roots (pause), in order to find the strength and the inspiration to carry us through the difficult days to come.

My fellow Americans, Try this on for size.

(marine band strikes up, POTUS sings in a pleasing baritone):

Once I lived the life

of a millionaire

Spending my money

Oh I didn't care

Taking my friends out

For a mighty good time

Buyin' high priced liquor

Champagne and wine

Oh but just as soon

As my money got low

I couldn't find nobody

And I had no place to go

In my pockets, not one penny

And as for my friends,

Man, I hadn't any

So, if I ever get my hands

On a dollar again

I'm gonna hold on to it

Till that big eagle grins

Cause it's mighty strange,

Without a doubt

Nobody wants you

When you're down and out

"Nobody wants you when you're down and out" - Jimmie Cox

DS

The dollar sinks

"It was sad when the great ship went down"

David Seaton's News Links
Jeffrey Frankel is a professor of economics at the Kennedy School of Government, Harvard. He sees the US dollar being replaced by the euro as the world's dominant currency by 2015. As you can read below, he seems to know what he's talking about.

What does having the worlds' dominant currency really mean? What does it mean to physically produce the money that everybody around the world buys nearly everything with?

It means that when ever the USA owes anybody money they just print some and give it to them. And for years and years America's creditors have accepted that. Can you imagine how much fun it would be if you could do that too? Scribble "twenty dollars" on a piece of paper and walk away with some groceries that you could actually eat?

Can you imagine what it would be like if you had gone through life like that and suddenly had to stop? If you are an American living on dollars, you have and now you will. It's not going to be any fun. DS

Frankel: The euro could surpass the dollar within ten years - VOX
Abstract: In the past, US deficits have been manageable because allies have been willing to pay a financial price to support American global leadership; they correctly have seen it to be in their interests. In the 1960s, Germany was willing to offset the expenses of stationing US troops on bases there so as to save the United States from a balance of payments deficit. The American military has long been charged less to station troops in high-rent Japan than if they had been based at home. Repeatedly the Bank of Japan, among other central banks, has been willing to buy dollars to prevent the US currency from depreciating (late 1960s, early 1970s, late 1980s). In 1991, Saudi Arabia, Kuwait, and a number of other countries were willing to pay for the financial cost of the war against Iraq, thus briefly wiping out the US current account deficit. Unfortunately, since 2001, during the same period that the US twin deficits have re-emerged, America has lost popular sympathy and political support in much of the rest of the world. The hegemon has lost its claim to legitimacy in the eyes of many. In sharp contrast to international attitudes at the dawn of the century, opinion surveys report that the US is now viewed unfavourably in most countries. The next time the US asks other central banks to bail out the dollar, will they be as willing to do so as Europe was in the 1960s, or as Japan was in the late 1980s after the Louvre Agreement? I fear not. The decline in the status of the pound during the course of the first half of the 20th century was part of a larger pattern whereby the United Kingdom lost its economic pre-eminence, colonies, military power, and other trappings of international hegemony. As some wonder whether the United States might now have embarked on a path of “imperial over-reach,” following the British Empire down a road of widening budget deficits and overly ambitious military adventures in the Muslim world, the fate of the pound is perhaps a useful caution. The Suez crisis of 1956 is frequently recalled as the occasion on which Britain was forced under US pressure to abandon its remaining imperial designs. But the importance of a simultaneous run on the pound and President Eisenhower’s decision not to help the beleaguered currency through IMF support unless the British withdrew its troops from Egypt should also be remembered. READ IT ALL