The Global Economy Burns, While its Leaders Fiddle
Sunday, May 15, 2011 at 8:05AM China is by no means a panacea of economic equality or perfect policy. It has a fast growing portion of billionaires and accounts for nearly a third of the world’s luxury goods consumption, while its per capita GDP ranks 125th globally, and 2.8% of Chinese live below the poverty line (according to ‘official’ stats).
In contrast, the US has an official poverty rate of 14%, though think tanks like the Economic Policy Institute, consider this estimate low. Still, in its latest 5-year economic plan, the Chinese government at least gave lip service to how to deal with its growing inequality - by increasing certain wages by 40%, decreasing taxes on the poor and increasing them on the rich.
The US government has no such strategy, except in campaign speeches, as reflected by our anemic economy. Instead, we witness inane partisan prattling over the deficit and what mini-budget modifications are needed to bring it into line, most of which would disproportionately detract from the people that had the least to do with inflating it. (i.e. anyone not running a bank or hedge fund.)
Yet, like our own, inequality figures will worsen for China, which will ultimately destabilize its economy. The result of attracting that menacing, mercurial entity called ‘global capital’ is inflated growth figures predicated on bulging service sectors and population wealth gaps. The more capital sloshing around a country, the more destabilized it becomes, and the more its leaders pretend that’s not the case.
Global speculative capital (the kind flowing through any major financial entity) is cunning, aggressive, greedy, shortsighted, and yes, cowardly (it doesn’t stick around when things get shaky.) If it were a person, it would smack down minions of grandmothers and infants to get to the door of a fiery building first, and then deny burn victims healthcare. It hates rules, which is why it likes promoting the notion of markets free of them.
Individual investors in silver are the latest casualties of speculative capital’s fickleness. People that invested their own money in silver were snuffed by the entities that borrowed or invested other people’s money to do the same. The COMEX found the anti-speculation religion it never sought during run-ups of commodities prices for items like food and fuel, and raised silver trading margins. Though those hikes were the prevalent reason for silver’s price plummet, all they really did was give fast capital a chance to book profits and alter course.
Any investment is subject to fundamental forces, like supply and demand or how much US economic policy is devaluing its currency. But, it’s more subject to speculative whims, like who's in and out, by how much and how fast, whether its a fund or an entire nation.
The time-honored scheme in which controlling capital cons ordinary people (or governments) to join it before crashing or heading for the hills has devastated many individuals and economies. That ploy ran rampant during the crash of 1929. Banks put up their ‘own’ capital, which was really borrowed capital, to spur individuals to do the same with their savings. When banks pulled out, people were hosed thrice – through the loss of their savings, the decimation of their bank accounts that the powerhouses used for speculative purposes - under the guise of – serving their clients, and by a raging Depression that killed jobs and hopes.
Not much has changed. Matt Taibbi’s recent excoriation of Goldman Sachs reveals how gray the line is between screwing and screwing, one’s clients. Only now, when banks lose money, governments and central banks reward them with trillions of dollars of subsidies, using the excuse of aiding the population and avoiding larger catastrophe. They say things like - it takes time to increase employment, but we can waste no time in propping up our financial system. Or - pensions and teachers caused budget failures, but we’ll keep holding excess reserves, borne of debt, for banks in case they need it, and pay interest on it.
We are in an ongoing global economic depression. The signs are everywhere, even as they are lost on economic leaders that put private banks and short-term speculative capital before citizens and long-term working capital. Central banks use other people’s future money in the form of debt to do this. No central bank holds, and thus enables, more national debt than the Federal Reserve.
I hate to keep repeating this, but until someone of some ability to do anything gets it, I’m going to keep going. Last week, Fed chairman, Ben Bernanke, co-enabler with Treasury Secretary, Tim Geithner (among others) of our ballooning debt and mis-prioritized economic policy, urged Congress for another debt cap increase, or else. The guy holds about $2.5 trillion of debt on his books, being used for – nothing helpful to the general economy. A simple transfer would solve the debt cap problem in a nanosecond. Going a step further, a simple exchange of any of the $1.5 trillion of excess bank reserves receiving interest from the Fed, would do the same. Instead of defaulting on, how about retiring, some debt? Thinking outside the box.
All around the world, the bodies and countries with the most power keep screwing people (some like IMF head, Dominique Strauss-Kahn, literally) and entire nations, while supporting their banking systems. Last week, S&P announced it would downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs.
Echoing our own Congressional goons spewing spending cuts in the face of inadequate revenues and for-bank-manufactured mega-debt, the S&P noted, “Two-thirds of the projected savings in [Portugal’s] 2012 budget will likely come from spending cuts.”
On a roll, the IMF also declared Italy needs ‘structural reform’, meaning labor market reform, less public ownership and more private investment to “unlock its growth potential.” (aka invite more speculative capital at its earliest convenience.)
Meanwhile, thousands of people are again striking in Greece, as the IMF and EU discuss more austerity measures, following the bank bailout that provoked public outrage a year ago, and a rating downgrade by S&P. The EU remains more concerned with investors regaining confidence in Greece than economic stability of its citizens. Then, there’s Ireland, for whom its last bailout didn’t dent its 14.5% unemployment rate, or fill in the gaping holes its banks dug.
In short, the global ‘remedy’ for depressed economies and debt-bloated banking sectors remains to do – more of the same - and pretend this will beget a different outcome. Yet, there is no way this strategy will result in more stable economies. What we can expect instead is further widespread deterioration.
Ben Bernanke, China, Congress, EU, Fed, Greece, IMF, Italy, Matt Taibbi, Portugal, Tim Geithner, debt 
Reader Comments (24)
I love you honest analysis, Nomi. Right on the spot. Thank you for great words.
Once again, it is a testament to our civility that we don't tar and feather the rascals, erect the gallows and guillotine these sociopaths. Maybe rehab would help curb their addiction, but if they have brain damage they deserve institutionalization. Just saying.
I am so afraid for the future of our country. What is happening is so insidious, it's hard to think that (at the risk of sounding like a conspiracy theorist) there isn't some underlying reason for the policies being pursued by the central banks. Austerity and liberty cannot coexist. Greece will be the crystal ball for the future of Western society. I pray the Greek people will survive and emerge from this debacle intact with the rights and liberties that they gave to the world thousands of years ago.
Yes, Greece was the starting point of a wave of protest that ran through Europe, the middle East, and part of the US (like Wisconsin), it would be amazing to see the Greek people continue what they started until leaders get it right ...
Nomi,
Erudite, intelligent and cogent. And the title of the article describes it perfectly.
Many thanks.
DavidC
All true and spoken well, but it lacks what we all seem to lack these days; actionable answers to the problem. Anyone who cares (or dares) to actually think about what is going on can plainly see it before their eyes, but what it all eventually comes down to is, what can we do about it? We live in an age when those that have pulled the wool from their own eyes are not the types to light torches, take up arms and do violence against those that have been screwing them, but it seems like we have all given up because any peaceful option is much harder to come by, and comes with no guarantees of success.
The crimes against the general population are so vast and obvious that they are hardly even worth mentioning anymore. What I would like to see now is some powerful minds like yours putting some thought into a solution. I ask again, what can we do? I have been focused on this question for several years and still I am empty handed. Can you help?
p.s. Please don't respond with "Buy my book." I just might cry and give up hope for good.
Nomi, what do you mean with the following statement?
'The more capital sloshing around a country, the more destabilized it becomes, and the more its leaders pretend that’s not the case.'
Are you saying that if there is a lot of capital available, but does not get used, that it somehow gets misused? What is the distinction here between 'capital available' and savings?
Thank you
Jacques
Basically, the technical version of 'sloshing' for me, is unrestricted capital, or less restricted capital, able to zip and and out of a country only an opportunistic, momentary basis, as opposed to a longer term or strings or rules attached one. The faster capital seizes and leaves any opportunity, the more devestating the potential fall out. Savings is longer term.
The answer to the crisis was and is simple: market discovery of the bad debt. But, no. That is not an option. Shining the light of day on the problem would expose the fraud and corruption behind this fiasco and it would bankrupt many of the Wall Street and The City players, if not sending them to prison in the process. The "System" would fail, and by that I mean THEIR system. And that would be the biggest tragedy of all.
I couldn't agree more with Zachariah | May 15, 2011 |
Many of us know, from experience, and a bit of study, what's going on. Those who don't will catch on soon enough.
As enlightening as Nomi Prins, Michael Hudson, William Black and others' commentary may be, it is tantamount to idle physicians' descriptions of bodily symptoms, low blood pressure, low blood count, dwindling vital signs, while the vampire is right in front of them, clamped down on its victim.
Are we simply to contemplate our own demise? Where are the ideas, strategies, solutions?
I've resorted to growing a small amount of food in the midst of a major European city, and am advocating European-wide urban agriculture initiatives, but it's no solution.
The problem boils down to determining the common denominator to what ails our failing species and addressing it in an organized and strategic manner.
We need ideas. Nomi Prins?
YES! More of the same.
Systemic failures everywhere.
The answer...
MORE system !!!
"General Motors will invest $109 million in its operations in Flint and Bay City , Mich., to support engine production for current and future fuel-efficient small cars produced for the U.S. market. The investment will protect or add 96 jobs at the two sites."
http://www.zerohedge.com/article/gm-spend-109-million-preserve-96-michigan-jobs
Zachariah, Hyssop -
You're both right - doing something is needed. What Bill Black, Michael Hudson, Matt Taibbi, Yves Smith, Tyler, myself, etc try to do is spend long hours alerting as many people as we can as to what's really going on, the crime of it all, rather than not doing that. I can tell you - sometimes, often - it seems like whistling in the wind - not wrt people like yourselves, that are actually giving it concern and thought and intent, but to the vast majority of people that aren't. It is a frustrating endeavor - precisely due to that wind itself - the massive dominance and influence that a small group of people and institutions and extractive philosophies yield over everyone else.
The only way to actionably even attempt to alter that is to a) encourage more and more people to get a clue as to what's going on and realize it does impact them because if you don't know there's a problem or what it is - you can't remotely hope to fix it and b) do something as you say.
But, I don't have pat answers, I would structure an economy differently if I were in charge of it, I don't believe in trickle down economics or that markets will correct everything, particularly when they're rigged by those that control them, I believe in strong, widespread economic foundations of more secure people locally and globally. I don't believe that austerity for the public is a solution to gross malfeasance by the monied interests. I don't believe a Fed chairman should have a job for 14 years or more. I believe people will help each other in a bind and that the power structure works to keep them from doing so as much as possible. I believe power's main job is to retain power.
I can't say there's some check list to follow and the world will be equal again - the world's had a pretty strong head start in the opposite direction, that grows daily, but I have to believe that only large portions of aware and angry people that actively want change (which most don't, complaining and wanting to change are very different), and actively create different ways of co-existing (like your local food growth and agricultural initiatives that detract just a tiny bit from corporatized ones, everything adds up), can have the slightest possibility of invoking structural change.
What do we need to do? First, be aware and get angry - in large number, really large number, and commit to helping each other. It's in small ways that broaden. For instance, I know plenty of lawyers working pro-bono to help people stay in their homes against illegal seizure. I have received emails from people that have won, after years of struggle their cases, small but real victory. Then, make that awareness a thorn in the side of the influential, constantly. Not easy at all. Look at Wisconsin and elsewhere. Consume what we create locally to take dependence away from the most powerful, be more organized, bank locally if we can, join with groups that are more organized so their numbers reflect more than whistles in the wind, be more rebellious and demanding of a system that benefits everyone at a more progressive level, stop voting for people that don't deliver, get behind those that do. Fight against all that is ingrained, starting locally and building up. That fight takes different forms - look at Egypt, the UK, Greece - and it isn't easy.
None of this is as simple as outlining a list of things to do, I'd be lying if I said there was some magic way of keeping leaders of governments and companies to a code that's moral and mass serving rather than opportunistic and self serving. The solution to that is changing the worst elements of human nature. I have no idea how to accomplish that. Most of this is honestly not attainable and that's a sad, cold reality, but doing anything is more useful than doing nothing.
And I promise to give more thought to a better set of actionable items.
Nomi, just saw you on RT's Alyona Show and I was a bit shocked that you stated 'It would be a good idea to have a global currency.'
Why do you think it is a good idea to have a central currency? Would this not inflict more of the same to what the dollar is doing now, only starting all over again?
Hi Jacques, I think what meant, or would have described more with more air time, is that having a global currency that wasn't the dollar would be better than having the dollar be the defacto global currency. But, probing into that further though, yes, a similarly constructed currency would cause the similar types of problems that keeping up with the dollar causes, and that are going on for example, with the Euro, so I wouldn't design a currency that had the same ease of ability to be used to force bad economic policies on local, national populations that we see today. It would basically mean a total rethinking of currency.
Just did some of the Math. China is one of the most populous nations in the world. Its population at 1,355,855,436 at present, over a billion people. 2.8 Percent of that is 37,963,952 .
The population of the U.S at present is 312,871,117 persons, 14% of that is 43,801,956.
43,801,956 U.S.A vs 37,963,952 China. Nomi, your right .The U.S.A beats China in the number of people living beloow the poverty line even though China has nearly 4 times the population size.
that is some scary math - thank you,
Forgive my ignorance, but I have a few questions regarding your post.
1 - "Going a step further, a simple exchange of any of the $1.5 trillion of excess bank reserves receiving interest from the Fed, would do the same. Instead of defaulting on, how about retiring, some debt?"
How would a country such as the US go about doing this, and what are the ramifications of doing so? Am I correct in assuming that the big players don't want this, as it would mean less with which to manipulate markets, or am I misunderstanding?
2 - "Last week, S&P announced it would downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs."
Considering that S&P (along with the other big agencies) had a not-insignificant hand in creating the financial mess with their questionable ratings, is there any reason to take them seriously anymore? Why are they being taken seriously, especially by other governments? It just seems like ridiculousness, entrusting the henhouse to one of the foxes that played a part in the last debacle.
Awesome work!
Ben, in practice, i'd be really simple. the Fed would cordon off some of the excess reserves, tell the banks that they got help and cheap funds, part of which went to buying the treasuries that comprise those excess reserves, and increased our debt, and now it's payback time, so some of those funds need to go to helping the greater economy. The Fed has an 'emergency powers' clause that lets it basically do whatever it wants in the name of stabilization.
In reality, this will never happen. It's the banks money now, that it is parked at the Fed is something we're supposed to be grateful for.
Wrt the S&P, you're right - they are given too much power and influence, even after their toxic assets screw-ups, yet their rating downgrade threat actually did help validate the Portuguese bailout, which was approved the next day. Meaning, nothing has changed, not matter what we've all learned. Rating agencies are validators or scapegoats, depending on what suits the power-money narrative best at any given moment.
Why doesn't the government take back the power to create money? Instead of borrowing from the Fed, money it creates out of thin air, then charges interest for it, the government could spend money, tax free, into circulation on goods and services that taxes now pay for. We need to repeal the Federal Reserve Act of 1913 and the 16th amendment passed also in 1913, that taxes us to pay interest on the debt for the counterfeit money created by the Fed. It's central banking that is the problem. The fractional reserve method of lending that allows banks to create money needs to change. The reserve requirement should be close to, if not 100%, instead of the 10% that it currently is, which allows banks to loan out 10 times more than they have in reserve. That way banks could function how most people think they do, which is lend money it already has, instead of creating money by accounting entry, out of thin air like the Fed, when it creates the loan. We've been brainwashed into thinking the Federal Reserve is a part of the government, when it is a private corporation, a banking cartel. The M3 figure that used to be reported, is actually equal to the national debt because our money supply comes into existence through debt. If we paid off the national debt, all money would disappear, unless we paid it off by newly created US Greenbacks - money created by the government itself and not the Federal Reserve. Whenever I hear any politician talking about paying down the debt, or tightening the budget mostly on the backs of the poor while giving tax breaks to the rich, I know they are either lying or are ignorant, or both.
Agreed. "We've been brainwashed into thinking the Federal Reserve is a part of the government, when it is a private corporation, a banking cartel."
We are also supposed to believe that as a private entity, whose shares are proportionately owned by the banks themselves (that receive 6% dividends on them to boot) the Fed is truly concerned about debt reduction or job creation. I mean, why would it be?
What do you think about the government creating the money supply, instead of letting the Fed create it and charge interest for it?
It's the lesser of two evils, given the Wall Street - Washington ties, at least in theory, the Treasury department budget is federally allocated and it operates within the political system. Besides the Fed printing money and actually, paying interest on bank reserves (as of the 2008 act) and paying dividends on bank shares, and holding mortgage and treasury securities on its books in record amounts, it operates with relative impunity. Having the Treasury department in charge of printing money and issuing debt only as needed without the mechanism of the Fed there to hold it, should create a more balanced system - that said, we'd be dealing with the same people in charge.
First of all, I would like to thank Nomi (and others like her) for the efforts to not only produce better and more accurate information but also for taking a moral stand in these affairs. After all, it is not only a political/economic issue, it is equally, if not more so, a moral issue as well.
Anyway, I would like to deal with the question "What ought to be done about all this?". I think that possible action can broadly be divided into three categories: action concerning 1) use of money, 2) political involvement, and 3) violence.
I will address the second option (in a very limited sense). Although political involvement consists of much more than voting in elections every now and then, it certainly is an integral part. The major parties – in the US and elsewhere – have shown that there is little to no difference between them. Regarding the major parties, the distinction between left and right has lost its meaning a long time ago. For instance, in Europe the (social) democratic movement as a political party separated itself from its origins, the working class, already during the 50´s and 60´s. The result is that now you have a “left wing” party doing “right wing” politics.
One possibility, then, is to vote anyone excluding the ruling (largest) parties. In the case of the US, this means that one should vote anyone except the democrats or the republicans. What is there to lose? Nothing much, as the ruling parties all over the world are doing the same things: creating economic destruction and building a police state. The only risk is that if we start to vote for the alternative parties, the financial elites will eventually try to corrupt them as well.
While the involvement of money in politics (corruption) is impossible to remove – after all, when it comes down to it, many if not most of us are corruptible – it is possible to at least lessen the effect. For example, decentralised decision making is much more difficult to influence or, at least, it would be more expensive to do so than in the case of one concentrated power centre. One way of modifying the voting pattern is to prefer smaller, alternative parties, no matter who or what they are. If these, then, start to grow or when they become large enough, the pattern is changed again to favour the smaller ones (even if they have been large in the past). However, this kind of behaviour would quite likely add a level of predictability that could be exploited by those who would want to “invest” into politics.
How to remove the predictability? Simple: by randomising voting behaviour. That is, giving each candidate or party an equal possibility of being elected. All that is needed is, say, a numbered list of the candidates and/or parties, and using a random number generator to pick one(s) from the list. It is certainly possible that this way the best and brightest won’t be elected – which shouldn’t matter, as the possibility of having as leaders enlightened philosopher kings or “philosopher politicians” is already slim to zero – but at least the corruption would become much costlier as the whole political field would have to be bought. Additionally, voting would be immunised from the effect of the silly political stunts of the mainstream media and the like. That is, no amount of money could sway the vote one way or another.
I am not saying that this would be the ultimate solution but I do think that in the present state of affairs, it would be worth a try. Naturally, this could only work in countries where there either are alternative parties or where it is possible to create them.