Neoliberalism and the Rise of Corporate Globalism

Excerpted below is a recent book review of Globalists: The End of Empire and the Birth of Neoliberalism, by Quinn Slobodian, Harvard University Press.

I have included a link to the entire article which I recommend reading if you wish to know more about how the rise of globalism, corporatism, and neoliberalism may go hand in hand within a reasoned construct.

I could have included much more and still not done justice to the themes and thoughts that it contains.

I found it particularly helpful because it provides a plausible rationale for the continuation of the European Union, despite its malformed integration of a currency union without internal financial integration of debts and transfer payments.  Not to mention its odd admixture of a remote central bureaucracy trumping traditional policy areas within the domain of national sovereignty.

It also helps to understand the stubborn commitment to global 'trade treaties' by corporate Democrats that tend to elevate international  bureaucracies and rules bodies,  dominated by corporate lobbyists, over the inclinations of their own national electorates. 

Obama's determined slogging for the TPP, even as his intended Democratic successor was being electorally eviscerated for her perceived corporatist elitism, was otherwise inexplicable given his sophistication in managing perceptions.

In this perspective these seemingly obtuse things can be seen as 'features' rather than well-intentioned but naively crafted arrangements containing unintentional flaws.

This review also positions neoliberalism within the context of the development of economic and political thought in the 20th century.  The two are inexorably entwined because, as is well established throughout human history, money is power.

The Boston Review
The Market Police
J. W. Mason

"Globalism in this story is not only, or even primarily, an extension of contacts between people, trade, production. Rather, it is the creation of a set of property rights that, precisely because they span multiple sovereignties, cannot be touched by one government without inviting conflict with another. In this sense it is positively desirable for property claims to cross national borders. Foreign investment, regardless of its value or otherwise for financing production, performs a political function that domestic investment cannot...

Organizing property and production across borders—whether through free trade, protections for foreign investment, currency unions or other devices—does more than limit the power of governments. It also serves, Slobodian writes, “to dissolve the small, discrete collective of mutual identification...in a larger unity.” Hayek spent much of his life searching for “a political model that would undermine the ‘solidarity of interests’ that naturally cohered” among similarly-situated people. Open borders played a critical role here, ensuring that economic interests were never “lastingly identified with the inhabitants of a particular region...

Today, the European Union offers the fullest realization of the neoliberal political vision. There is no sovereign people of Europe; the authority of European institutions rests on a body of law and treaties. The European Union is not a nation, but it is not simply an agreement among nations either. Unlike international agreements, European regulations are directly binding on individuals and not only on the government signing them. In many areas, European regulations and authorities don’t merely constrain, but actually replace, their national equivalents. (This is what makes Brexit so difficult.)

Europe’s incomplete integration—with its confusing mix of powers delegated to Brussels and powers retained by national governments—is often seen as a design flaw. But to Slobodian’s globalists, partial integration is precisely the goal—it means that neither the national nor the international body have the legitimacy and capacity to direct the economy. With no international entanglements, a government is sovereign; with complete integration, sovereignty moves to the higher level. What is wanted is a situation in which some powers but not others are delegated, leaving neither national nor super-national governments able to act outside of circumscribed role...

One might even call this the neoliberal paradox. State power is needed to enforce market relations and property rights, but when it rests on democratic politics, it can easily turn into a vehicle for a broader program of economic planning. So the site of power must be anonymized, hidden from politics—as in the opaque jurisdictional mazes of Europe...

From this point of view, the essential thing about the single European currency is not whatever dubious practical advantages come from having prices across the continent measured in the same units. Rather, it is the creation of the European Central Bank as an ostensibly technical decision-maker, more insulated from democratic politics than any national authority could be."

Read the entire book review at The Boston Review.

The Global Monetary Phenomenon That Almost No One Is Seriously Discussing

I wish to present, in just a few charts, a remarkable monetary phenomenon that almost no one is discussing publicly.

 

As you can see below, the central banks of the world, largely those of the West led by the US and the UK, were net sellers of gold throughout the 1990's and through the turn of the century.  

 

As the Bankers to the world's reserve currency and sole global superpower, the Western central banks will make no major international policy decisions without the involvement of the Treasury, and especially the Federal Reserve and its constituent global banking machinery including the behemoth

Banks and the SWIFT system.

 

Gold purchases by central banks, at least those they were willing to publicly acknowledge, turned positive by 2010 at most.

 

The pundits did not expect this change to continue, as is shown in the 'forecast section' for 2012 and after in this first chart from RBC/Bloomberg below.

 

This chart shows most clearly perhaps how the Western central banks stepped up their gold selling attempting to control and then crush the price of gold, driving it down to a low of $250 in 1999-2001.

 

Interestingly enough this came to be known as Brown's Bottom.    England, under the leadership of Gordon Brown, then UK Chancellor of the Exchequer, very publicly sold 400 tonnes of its sovereign gold starting in late 1999 and 2001, reportedly to bail out some of the Banks who had gotten over their heads on short sale positions.

The largest net sales amount of gold reserves was in 2005, as the central banks attempted to dampen the price of gold which had risen from $250 to $450.   This selling was co-ordinated under the Washington Agreement, which was a so-called gentleman's agreement amongst some of the Western central banks, first created in 1999 and thereafter revised and extended in 2004. 

The banks included the ECB, Sweden, Switzerland, the UK.   Although it was not a signatory, the Federal Reserve was obviously involved.   In August 2009 this agreement amongst 19 central banks was extended for another five years. 

Spun positively by the financial media as 'good for gold,' this coordination of selling was designed to allow the Banks to coordinate their efforts, and not clumsily disrupt the markets as the Bank of England had done in 1999, allowing them to manage their sales and announcements for a smoother effect on price.  

As can be seen on the chart below, the central bank gold selling was unable to obtain traction, and the price of gold continued to rise as the Banks began to taper off their attempts to control the price through outright physical selling which seems to have had its last hurrah in 2007 as noted by Citigroup. 

"Official sales ran hot in 2007, offset by rapid de-hedging. Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price. Our sense is that central banks have been forced to choose between global recession or sacrificing control of gold, and have chosen the perceived lesser of two evils. This reflationary dynamic also seems to be playing out in oil markets."

There are other non-bullion instruments which the central banks may employ to manage the price of gold which include strategic leasing, derivatives, and the use of proxies to influence markets in the manner in which certain financial entities have been recently exposed to be manipulating many other global prices and benchmarks, over periods of many years.   Yet there is still a great deal of denial over the central bank attempts to manage the price of gold relative to their currencies, despite an abundance of circumstantial, historical, and direct evidence.

 

This simple chart more vividly portrays how the forecasts of declining purchases of gold by central banks after 2011 were wrong-footed.

Since that time, central bank purchases have risen to 48 year highs.

One thing that we should bear in mind here is that the central bank numbers are based on 'official' numbers given to the World Gold Council.  

There is significant evidence that some of the central banks, notably China, are significantly understating their acquisition of gold as a matter of their own discretion.

 

Here is my own depiction below of the sea-change called 'The Turn' in global central bank purchases of gold.

This turn coincides with what I along with more important others have called the currency war,  most notably in a bestselling Chinese book published in 2007 by Song HongBing called Currency Wars (货币战争), and a book published in Nov. 2011 by Jim Rickards by the same name.

 This is different from the 'currency war' which the financial media likes to portray, as the devaluation of national currencies to obtain competitive advantage, is more of an artifact from the 1930's.   This new currency war involved a rethinking of the US as the global reserve currency, an unusual condition for a fiat currency which has been in place since at least 1971 when Nixon closed the gold window.  

 

From the end of WWII the Bretton Woods Agreement had set up the US dollar reserve as a proxy for gold, redeemable at least by other central banks and their governments.  After the closing of the gold window the world was pushed into a scenario of central monetary authority it had not experienced in recorded history:  a single country, through a semi-public banking entity controlled the issuance of the world's global reserve currency unencumbered by a hard reference to some neutral external standard. 

 

This currency regime has been maintained by military and political power, informal agreements, treaties and trade sanctions, between 700 to 900 foreign bases of power and influence, and the indirect control of key global resources such as oil, the so-called petrodollar.

 

 

I certainly cannot predict where this will end, except to point to the example of past endeavours such as the London Gold Pool, and suggest that absent draconian government actions, market forces tend to overcome and overwhelm such efforts over time.  

 

As I have forecast for many years, at least from 1999, the natural objective of a global fiat currency regime is a unipolar, or quite possibly a multipartite global government that is more centrally directed oligarchy than sovereign democracies.  

 

The relationships of the various countries with the central authority in the evolving Eurozone are an approachable example on a small scale, a test run for the inverted totalitarianism, or neo-corporatism, of the bureaucrats and their corporate sponsors, to be a bit extrapolative.  Although I think that the TTP and TTIP are glaring signposts along the way.

 

One particular point of frustration has been how slow on the uptake so many economists and financial commentators have been in thinking through the various monetary schemes that they promote.  I doubt if they understood where they were leading that they would support them, even as their objectives are thought to be good. 

 

 

The Pursuit of Global Corporatism

The need for a third party in the US becomes more compelling every day.  Or a bipartisan effort to stem the corrosive, anti-democratic influence of Big Money.

 

But I do not see the forces for reform cohering yet.  The attraction and example of power politics and money is too embedded in the mindsets of those whose thinking flows from the status quo. 

Even the reformers can fall quickly into a model of force and compulsion, and heavy handed techniques in pursuing a 'freedom' which they seek to define and control, too often ignoring history and reason.

 

The sign of this is the attitude that there is an elite who, operating in secret and with autonomy, can best decide the meaning of value, and the course of economic events.  It is ironic to see 'reformers' eager to replace one form of oligarchic rule with another that they believe will be more friendly to their own policy decisions, but somehow more benign and resistant to corruption without firm checks and balances on power. 

Sustainable good does not flow from more effective rules but from a better choice of and commitment to a priori values.  Honesty, openness, toleration, justice and kindness are values.   Right over might is an enduring act of balance in human affairs. 

Watch what they do, and not what they say.   If a 'reform movement' is quick to engage in censorship and deception, intolerance and harshness, creating more and cleverer rules and complex theories to achieve their ends, it is most likely another face of the same underlying problem of injustice, no matter what self-delusions they may choose to promote. 

 

As historian Christopher Dawson noted, 'As soon as men decide that all means are permitted to fight an evil, then their good becomes indistinguishable from the evil that they set out to destroy.'

In point of fact, complexity and 'cleverness' are often the very models of a false premise as much as the repetitive simplicity of the Big Lie.  What is presented as new and modern is too often the same old thing wrapped differently.  The truth is often hidden in between, but actions speak loudly.

It will be interesting to see how this situation develops.

TPP Is Not a Free-Trade Agreement

Dean Baker

27 December 2014

People in places like rural Kansas and downtown Washington, DC often have a misplaced trust in authority and elected officials. They are inclined to take their comments at face value, not realizing that these people often have ulterior motives.

The Washington Post gave us an example of this confusion in a front page article on President Obama's effort to push the Trans-Pacific Partnership (TPP), which it repeatedly refers to as a "free-trade" pact. The piece follows the administration's line in telling readers that:

"the president threw his full support behind the pact as part of a broader effort to rebalance U.S. foreign policy to the fast-growing Asia-Pacific region."

This assertion makes little sense since the administration is simultaneously pursuing a similar trade pact, the Trans-Atlantic Trade and Investment Pact, with Europe. What both deals have in common is that they are primarily about imposing a business-friendly structure of regulation on both our trading partners and the United States. The more plausible explanation is that President Obama is trying to get more business support for the Democratic Party...

Read the entire article here.

John Ralson Saul: Re-evaluating the Current Approach To Trade and Globalisation

Does globalization actually deliver what we thought it would?

There are a range of choices between free trade and protectionism.  Ideological commitments and purity may prevent a meaningful discussion of the situation.

Is there really a surplus of goods, or is trade organized around a plutocratic economic model that is providing a scarcity of wages for labour?

When local laws are leveled by the economic realities of globalization, can nations retain their own character and choice of government and guiding principles?

Can there be genuine 'free trade' in a world in which only the US is a major military and monetary superpower, owner the world's reserve currency, with Russia and China alone presenting some effective counterbalance, while many other nations, among them much of Europe and Japan, have become essentially incapable of exercising enough military power to defend themselves and preserve order in their own regions except for minor police actions?    Are the assumptions about the benefits of free trade founded on assumptions as unrealistic as those that drove domestic free market policies?

Is global free trade 'lifting all boats,' or merely spawning a proliferation of oligarchs because of its inherently lawless and borderless character?

Although the title of the video is in German, the presentation by JRS is in English.

John Ralston Saul: The Collapse of Globalism

"The transnational corporations and the money markets have declared the era of human-designed regulations over. Now the market must reign. Because few people in the business community are paid to think about phrases such as 'western civilization,' they don't seem to realize that they are proposing the arbitrary denial of 2,500 years of human experience...

Ever since the democratic systems permitted their various courts to give corporations the status of persons, the individual as citizen has been on the defensive. How could it be otherwise? If you are a person before the law and Exxon or Ford is also a person, it is clear that the concept of democratic legitimacy lying with the individual has been mortally wounded...

If allowed to run free of the social system, capitalism will attempt to corrupt and undermine democracy, which is, after all, not a natural state...Capitalism was reasonably content under Hitler, happy under Mussolini, very happy under Franco and delirious under General Pinochet."

John Ralston Saul


“The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences."

Carroll Quigley, Tragedy and Hope

Globalism, or globalization, is the theory that the world marketplace should be free of local, nation, and regional limits. It is founded on the belief that unregulated markets are the epitome and center of rational decision making, described as the most profit maximizing in the aggregate and therefore the most 'efficient.'

Globalism elevates economic measures as the arbiters of policy, and subordinates society and individuals to economic outcomes. Its value system is dominated by money and corporations, which are monetary organizations, in contrast to nations which are organizations of people.

"Bankers: Pillars of society who are going to hell if there is a God and He has been accurately quoted."

John Ralston Saul

Gold Holdings And the Evolution of Global Trade and Wealth

What fascinated me about this information is that countries that have much less of the official gold, that is gold held by the governments, are leading the effort to recast the SDR with some gold content in the changes scheduled to take place later this year. And they tend to be the high growth nations with the greatest commitments to exports. And it was a bit of a surprise to see that the Eurozone exceeds the US in total assets by volume. I did not know that. Of course, one may argue about the qualitative unity of the Eurozone. But the big holders of gold there are clearly the core of the union. This chart does not address the issue of gold holdings which may be leased out and sold to the private sector but still listed as an asset, but held as hedges, derivatives, and deep storage, that is, claims on ores yet to be extracted and in some cases even discovered. What is also fascinating, as shown below, is that if one looks at the gross levels of official gold holdings the total was steadily decreasing up until last year. Since there is an annual increase in total gold from mining activity, and very little loss through industrial use that is not subject to later salvage, it appears that there was a steady transfer from the public to the private sector. Essentially the private sector has been taking all the new gold production and official sales for an extended period of time. We have to wonder what sparked the spectacular bull run in gold starting around 2001 from about $250 to $1000+ per ounce? I can assure you, the bankers of the world think about this, and frequently. Since we are denominating gold here in US Dollars, there is an obvious negative correlation of sorts as the dollar moves higher and lower in perceived value by the world. But that does not explain the fact that gold is in a bull market in most of the world currencies except for a few of the commodity exporters and safe havens. Is gold a bubble? As someone who has been a close observer of bubbles for the past ten years the data does not recommend that conclusion. And what makes me even more curious about this point of view is that the very people who for the most part denied the existence of the obvious bubbles in tech, housing, risk, banking and credit, even to the point of absurdity, who could not or would not see a bubble if it perched on the end of their nose, who are card carrying members of the international monied fraternity, are the most vocal in calling gold a bubble with emotional arguments lacking any fundamental data. What's up with that? Some people, like Willem Buiter, have recently made silly and distracting arguments regarding their very subjective opinion about gold. That opinion does not bear all that much weight given gold's long history and broad use as a store of value, more enduring than anything else in recorded history. In other words, an opinion is like a vote, and you are casting your one vote in the face of countless votes of millions of people over the span of ages -- so your opinion is worth what it is worth, to you. It is the supply and demand that interests me. And it surely interests the monied powers, who seem to come out strongly in disfavor of gold and silver at certain intervals when they start getting nervous about the grip they have on the reins of the world's financial markets in paper. The sillier and more baseless their comments, the more my interest. So you will forgive me for seeming rude, but I do not care about your opinion, whoever you may be. I do not even care for my own opinion. I only care for what can be known. A good part of me is on the hunt for knowledge here, and whether you believe it yet or not is of little consequence to the outcome. You may as well spin opinions about the likely path of a truck as it bears down upon you where you stand. Only the trajectory and the mass of the truck matters, and the ability to step out of its way in a lively manner. Given the price action, it is hard to find a more 'popular' commodity as expressed in the action of buying by private individuals with disposable wealth, that at the same time is so seemingly 'unpopular' with public officials, and a genuine antipathy by the world bankers, and so little noted by the general public. The 'gold parties' that people were pointing to as a sign of a top were for companies to BUY gold in the form of old jewelry from the public, not for SELLING it to them and often at preadatory prices, despite the misleading spin from the mainstream media. I like data anomalies. They are so interesting. As Holmes observed in the story Silver Blaze, "Why didn't the dog bark?"

Gregory of Scotland Yard: "Is there any other point to which you would wish to draw my attention?" Holmes: "To the curious incident of the dog in the night-time." Gregory: "The dog did nothing in the night-time." Holmes: "That was the curious incident."

I cannot think of any single economic phenomenon that is more interesting in recent time, say the past 100 years, than the evolution of global trade, the basis for its exchange, and of course the official reserve holdings that are a natural outcome of this. For if one understands that the power to set and control the currency essentially trumps all local fiscal policy issues, there is almost nothing more important than the path which this evolution takes. Valuation and the ownership of the 'standard' of monetary valuation is key, and yet so little remarked, so little discussed in public. I try to resist the temptation to suspicion that statists are driving towards a unified command and control economy. I do not think that this agenda is the basis for formal discussions, except perhaps tangentially in the hallways of Davos. There is an impetus to power, and more power, that can create the same effect in groups of men without the need for formal discussions. Financial engineers and bankers will alway seek more control and more power, because they are seeking to master something that is a portion of human nature, that does not lend itself easily to linear manipulation. As their plans fail, they need to keep expanding to prevent a collapse and their personal humilitation. This is inherent in what they do. This is how dictatorships are created; they seem to be the easier path to inability, if not incompetency. But it is obvious that the theme since the 1980's at least has been the will to power, the knocking down of laws and regulations, to allow the most powerful to do what they will, to take an even greater share of the riches of the world, to the disadvantage of the many. And my hypothesis is that the global reserve currency is a key plank in this agenda. Perhaps this is such a perennial theme that is almost a tautology to remark about it, like a boy who first discovers the wonders of love, and thinks himself a Balboa discovering new oceans. Perhaps this boy is just discovering in a more profound way the deep roots of the darker side of human nature, the basis of evil: pride, greed, and deceit. But there is an ebb and flow in the tides of men, and the rise and fall of nations, ideas, and fundamental values like freedom, justice, honour, duty, mercy, equality, and hope. And we are certainly at the cusp of a trend change, a trend in place since the second Great War, and the dog is not barking. The game is afoot.

Memories of Beijing Ten Years Past

Below is a brief note from a friend abroad about his trip to Beijing and his experiences there with the retail gold trade which I found to be interesting. It is a sharp contrast to my last trip there over ten years ago.

The last time I was in Beijing was in 1998, and it must seem to be a different world there now. Back then there were few cars and a sea of bicycles. As a friend and I took a pedicab back from the Forbidden City to our hotel, it did seem as though we were in an ocean of moving people, bicyclists weaving about in ever shifting traffic patterns, with order maintained by some unspoken set of rules and deferences. There was no air pollution to speak of, and the sky was a deep blue, and the breeze crisp even on a sunny day.

Beijing was a sharp contrast to the great cities of the south. Vibrant Hong Kong nestled on the coast, and Shanghai, an expanding mass of grey on gray, concrete bristling with construction cranes. The sprawling capital seemed almost pristine, delicate. Especially if you did not see the huddle of one story concrete block villages on the outskirts of the main thoroughfares. But even they were more rural and underdeveloped than squalid like similar dwellings of the lower caste workers in the West. There was no litter or disorder, anywhere.

A major access highway was being constructed for the Olympics which the city hoped to host, which they did roughly ten years later. We marveled at the complete lack of heavy machinery, the mass of hand tools, and spiderworks of tied bamboo scaffolding.

The hotel was marvelous, with the kind of extravagant niceties that only a developing country can effortlessly provide to the prospective export trade. A twenty piece orchestra of excellent musicians in the spacious hotel lobby while you drink your coffee and tea in the afternoon is something that one rarely sees in a European hotel. And in the States, it is always impersonal, mass produced, and perfunctory. Welcome to the cult of death. Have a nice day.

Lovely people really, but the hardships of the countryside marked the faces of the peasants as we traveled outside the city to the Great Wall with our guide, Big Mah, so noted by his stature, which was average by European standards. The Wall itself runs the hilltops, clinging to mountainsides with remarkable tenacity. One does not walk the wall except for brief spans, and then you climb. The inclination is astonishing and the steps really large blocks, so it is an effort to lift your legs high enough from one to the next.

We labor to the top, to obtain a souvenir 'chop' on our paperwork at the summit, a symbol of our resolve. We are oddities again, some of the few Westerners. Crowds though of Chinese tourists exploring their heritage.

I am tired and sweating, regretting the lunch I ate earlier that day before the climb, and shamed by a young Buddhist monk who bounds up the incline like a gazelle, enigmatic smile spreading across his face, large straw hat in a fluid motion with his robes. I wonder why he is there. Do monks go on vacation? All he carries is a small leather purse and a stick.

Beyond that top point is the Wall unrestored, a shambles really, a recognizable collection of stone but not much more. Hardly a wall, more like a resilient pile of manmade things with a sort of quiet endurance, waiting for its renewal and the restoration provided by a Ten Year Plan, or not.

The visit to the cloisonné factory revealed a large showroom with small shops in the back staffed by women, intent as they worked in appalling, dirty conditions on ancient looking machinery. No health and safety inspections here. This is the ideal capitalism as Bill Gates described it after his own visit to the People's Republic. Keep your head down and your mouth shut.

At the tombs of the emperors we saw great stone rooms, empty of any furnishings or artifacts, stripped of all decadence during the Cultural Revolution. At least they have not despoiled the tomb of the great Qin Shi Huangdi, which sits in brooding solitude under its man made mountain on the plain. Is it truly superstition that prevents its excavation, or a fearful respect for what is recorded to have been the labor of tens of thousands of men in burying their first great Emperor in what is said to have been astonishing opulence, rivaling and perhaps surpassing that of the Pharaohs.

At the nearly deserted Friendship Store we watched a man slowly and painstakingly painting the insides of small medicine bottles with intricate strokes from a brush that seemed to consist of a few hairs. I have several of them still, on a shelf in my study. I sometimes wonder what became of him, and his quiet obeisance to art and the dignity of craftsmanship. It is good to surround yourself with little reminders of people whom you have known, for their spirits are all that will remain when the last stars flicker out.

There were few tourists, and my Italian chief engineer and I would draw more than a few stares from the passersby as we walked down the broad avenue towards Tiananmen Square. There was a McDonalds but it was closed for lack of interest. Groups of people crowded around what looked like newspapers posted on public boards, a primitive version of the Internet cafe.

We watched a football match one evening in the hotel bar via satellite, Italy versus the Czech Republic. I pretended to sympathize with my friend in the Italian loss, which for him was disgrazia e disonore, for the Italians to lose to such a team as mine, but I secretly reveled in the win. There was nothing else to do, as they had no grappa on hand to ease his suffering. It was the only thing that would absolve such an indignity, except time.

As a guest of the government we dined one evening in an official restaurant, with doors guarded by soldiers. Dinner was a treat, but the attempts to playfully intimidate me with a still lively lobster 'sushi' were misspent, as I had done my time in Tokyo and the small places off the Ginza playing that same game with my Japanese friend Shino san. I am a citizen of the world, and nothing is alien to me except sin.

Afterwards they had group karaoke and dancing marked by a charming innocence. The old gold toothed host challenged me to a drinking contest, with something that tasted like distilled kerosene served in a heavy white ceramic teapot that in Chinese was called the alcoholic's friend. I refused to be shamed into it and deferred, as I had to get up at 5 AM the next day for a flight that could not be missed, as it only ran twice a week as a nonstop to Scandinavia. If missed, it meant a lengthy flight with a connection through Bombay. No time for hangovers.

One of the young ladies remarked about a recent film she had seen, The Bridges of Madison County. I had never seen it, and still haven't. She was impressed that American men could be so sensitive, as she had been led to believe that we were barbarians. I did not have the heart to tell her that despite some finer moments, we really are. And so are hers.

Everywhere the clerks were polite but restrained, obviously pained to please, but especially when changing money. Slogans in Chinese were everywhere, urging the populace to work hard to achieve the award of hosting the Olympic games, to the point of civic obsession.

The airport was a nightmare of people and traffic. The line to enter the departure area was a clotted mass of people surging towards a tiny female guard. After facing down her fierce glare and outstretched hand, I learned what was required from a young German tourist with backpack and halting English, directing me to first purchase a departure tax coupon at the other end of the terminal. Don't panic, just get it done.

Once past that narrows of official release, there were piles of luggage and a small stand, barely a cardboard table and marked by a tiny sign, where one checked in for the non-stop flight to Copenhagen. I was so worried about missing the flight that I took my carry-on to the gate and sat on it, forgetting to exchange my Chinese money on departure, in violation of their currency controls. The money was a key plank in their ten year plan, like the exhortations on the walls.

It's all different now. China seems to be making the great leap forward. I have heard that the sea of bicycles is gone, replaced by impersonal masses of metal moving in linear formations. They even have smog in the city, an innocence lost.

And where is the West going? Is there some force that is causing the wealth of the people to seek a level, flowing from West to East, to bring all to the lowest common denominator? Or are the elite powers merely leveling the common people under their governance and the will to power? Are the great world civilizations converging around the individual, to crush his spirit?

And what price freedom.

Just returned last night from Beijing. While on standby at airport from 11:30 AM until 6:30 PM (all classes of all half-hourly flights of all airlines were overbooked and loaded full, and so asia mile / marco polo gold membership were ineffective in attempts to cut in the queue). Beijing-HK air travel business must be good.

To kill time, I extracted paper cash from atm network and exchanged same for little one troy ounce monetary gold wafer at airport sub-branch of bank of china. The staff were courteous, and the sub-branch manager spent 5 minutes with me to explain the way to buy and sell back gold.

Each wafer is individually numbered, and registered.

China is progressing fast in its re-engagement with gold. Wonderful. It is interesting that gold seems to be everywhere now at the China retail level, legally bought, kept, sold back, and all tax free, at transparent pricing, in alignment with gold reform that was two decades in planning, implementation, and rollout.

Now that is market capitalism, which the US banking system is now sadly lacking. A free market is not dominated by opaque complexity, endless frauds and limited choices, with high rents extracted by government license, feeding on productive effort, placing toll booths across fundamentally simple transactions with a nightmarish private bureaucracy and regressive taxation. That is feudalism, or more recently, crony capitalism.

Capitalism is about the creation and the adding of value, satisfying customer demands, thereby making them -- happy. It is not the taking of inordinate fees through legalistic snares and artificial complexity, obstacles and contrivances, government sanctioned monopolies and corporate racketeering.

The Banks and politicians no longer respond to the people, their customers, because they have merged their interests to the exclusion of all others, serving themselves, undermining the fundamental basis of social relationships and trust. The starting point of regulatory reform is no longer what the people need, but rather, what Wall Street requires. This is the same model as the US health care system. The corruption starts its financiers, but has its roots in Washington.

And so perhaps we may have a global recovery, even prosperity, and a return to the discipline of the market, if we bury our would-be emperors, the Banks, with their terra cotta army of regulators and politicians.

Taylored Tales of the Monetary Bards

The title of this blog may appear a bit rude, and it is not intended to be denigrating of this particular paper from the Kansas City Fed linked below, but rather the organizational mindset that uses it to adjust anything more complex than the timing on a 1967 small-block Chevy with a straight face and a clear conscience.

Although a bit wonkish, "Was Monetary Policy Optimal During Past Deflation Scares?" does an exceptionally good job of explaining the Taylor Rule, how it has been derived and is utilized by Central Banks in evaluating and formulating monetary policy, ie., short term interest rate targets. The author gets high marks for clarity of language and a willingness to allude to some of the shortcomings of the method which is remarkable for most Fed research papers.

Financial engineering reminds one of saying we used to have in Bell Labs , when some individual or group was trying to formulate a practical response to a complex problem based on dodgy theories and elaborate field data: "Measure it with a micrometer, mark it with a grease pencil, and cut it with a hatchet."

One suspects that in this case, reducing the complexities of the economy to the output gap, real inflation gap, and the equilibrium nominal interest rate is like trying to arrive at the average depth of the ocean by using a micrometer to take a few ocean depth readings in a hurricane.

Yes each component has additional inputs, that vary widely and are difficult to measure, but to paraphrase, it does not matter if you calculation works, as long as it looks good, and darling doesn't this economy look marvelous.

It would be interesting to see the fun that Benoit Mandelbrot would have dissecting the Taylor Rule equation, derived from an 'optimal period' in US monetary policy. His book The The Misbehaviour of Markets is a must read for anyone who needs to be convinced that much of modern financial engineering and risk models are exercises in mathematical oversimplification and misdirection.

For those that are not so inclined to read this paper, let us just say that the data going in to the equation is subject to wide disagreement, adjustment, and interpretation, and the data coming out has enough spread from lack of modeling robustness to support just about anything, any outcome. Given the 'thinness' of the equation, which as the author refreshingly and freely admits, can choose from widely varying measures of 'core inflation,' while taking no account of asset prices and government industrial policy among other things.

I am sure the Board of Governors would respond that this Taylor Rule is merely one input into the collective decision-making of a group of wise men, who at the end of the day are combining their various perspectives into a judgement as to the optimal course of action, which includes their vast experience and readings of not only tools such as this, but anecdotal data from their various regions.

Too bad that our last Fed Chairman was a dissembling, blithering idiot, a standing joke in his private practice, who could not find the optimal monetary policy with both hands. But he was a masterful politician and bureacrat, surrounded by fellow sycophants, and did know how to serve the banking interests and make himself look credible, at least to outsiders. And in retrospect, this paper asserts that in fact the Committee under Chairman Greenspan did make a mistake in easing too aggressively for too long a period in the early 2000's. (well, duh).

And too bad the Fed has a significant amount of influence and power, so that even academic economists are too cowed by fear and greed to have said much while Sir Alan and His Merry Pranksters blew serial bubbles in support of the new banking economy. Because if Her Majesty the Queen wishes to be truly illuminated, that is why most economists failed to see the Crash coming: you get what you pay for.

Like Elliot Waves, this Federal Reserve process and these tools 'look good' when applied to historic examples, but one wonders who could possible use it to predict anything and take action on that with any level of success. Has the US Fed really had any unqualified successes based on their own initiatives, other than when Volcker took the economy in hand and, applying a sufficient amount of will, personal resolve, and common sense, tamed the pernicious inflation of the 1970's? They appear to have created more problems than they have solved.

So what is the answer? To do nothing and let the markets play themselves out? That is folly as well, because for better or worse markets are highly subject to manipulation from a number of sources, and the distortions caused therein are potentially devastating, when one considers the willingness for example of the Asian states to manipulate their currencies in support of a mercantilist policy of importing jobs as a means of solving domestic social problems. Or the propensity of the Anglo-American establishment to perpetuate gross fraud as a means of ravaging foreign peoples that too trustingly adopted the globalist model of deregulated banking and modern derivative financing.

The answer of course is that only a significant systemic change can take us out of this cycle. It will have to be one that recognizes that globalism is not an a priori good in a world where nations and peoples wish to settle on their own way of life, and solution set to particular problems in ways that suit them.

We are probably nearing the end of a long cycle of economic deregulation and monetary mysticism, in which old barriers and protections and particularities were struck down, often with little or no serious thought to the policy implications and long term social practices. The zenith of this trend is the consideration of the IMF or some such body as the global Central Bank, with a council of global governors setting everything from trade rules to de facto living standards. One way to make the models work and end conflict among the nations is to make everyone a slave.

When the financial and social engineers fail, their natural response is to make excuses and seek more power. If the CPI is proving to be an impediment to our calculations, let's change how we measure it. If the measurement of inflation is now adjusted, but gold keeps signaling inflation, let's manage the price of gold. And if people keep making independent choices that are not consistent with the predictions of our model, let us manage their perception, influence their judgement, override their own experience and the advice of their parents, and persuade them to take on more debt than they can possibly ever repay, and still remain free.

Hopefully this trend will fall apart before the globalists can do any more damage in the real world, but if it does not and we do get a Council of Global Governors, remember that their oracle is likely to be in dodgy, over simplistic equations such as this, which will be used to throw some clothing around what is most likely to be an exercise in influence peddling, elitism, and raw, naked power of the few over the many.

"Those in possession of absolute power can not only prophesy and make their prophecies come true, but they can also lie and make their lies come true."
Eric Hoffer

Was Monetary Policy Optimal During Past Deflation Scares?