Mark Blyth On Brexit, the Euro, Austerity, and the Rise of the Technocrats and Oligarchs

"Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.”

Jean Monnet, Memoirs


"I’m very pro-European, but I’m against the euro, so if I still lived in the UK I would have an interesting choice.  Now if you look at Larry Elliott in The Guardian, he thinks he should vote for exit because this might be the existential crisis that blows up the euro. Now why would you want to blow up the Euro, because 'that would be terrible etc. et cetera'.  Because the long-term effect of the euro is going to be to drive Western European wages down to Eastern European levels in global competition for export share with the Chinese.

That’s one interpretation as to where this all goes.  And that’s going to be fine for the Eastern Europeans coming up.  It’s going to be great for very efficient exporters in the North.  It’s going to be a disaster for France and parts of Italy, if not all, and certainly for Greece.

Now if you have a system in which one side runs a surplus and the other side cannot run a deficit because of the rules, the only thing the other side can do is permanently contract their economies to allow someone else to make money selling BMWs.  I don’t see this ending well so perhaps it’s better to nip it in the bud when you’ve got the chance."

Mark Blyth

While in some ways this analysis by Mark Blyth (and similarly by Thomas Frank) can be construed as an over-simplification.  But on the other hand it represents an insight into a fundamental reality that is driving much of what we are witnessing today, a reality that seems inexplicable to the political class of both left and right.

The liberals blame the irresistible imperatives of globalization and technology, and the conservatives blame immigration and everyone who isn't them or completely like them in outlook and customs.

Each has their own extreme prescriptions for the problems, many of which they have a part in causing, from free money gifted within the status quo structure,  to debt serfdom for most except the few.

And both are tragically misplaced in their judgements, because they are caught in a credibility trap of their respective ideologies that have displaced fundamental morality, fairness, and goodness.

It is hard to tell which side is more reluctant to see the systemic forces which are at play, and where they are leading. Both are willfully blind at their core, taking refuge in contempt for others (cf. Hillary and Romney) and elaborately conceived condescension towards any form of dissent, even the mildest.

At the best of times the powerful will not listen, and at times like these most have joined them on either side to escape the pain of thinking.   The decline and fall of a privileged class that is out of touch with the people, and the extremes committed by their enablers, are so common as to be a cliché of history.

So why bother even bringing it up at all?   For the same reasons perhaps that groups like the White Rose and the early church wrote their pamphlets, in their respective times of general madness— to keep a light burning in the dark, for those who follow.

Hopefully our own situation will resolve well before we reach such an extreme disassociation of reason and power and justice.

"Caesar was swimming in blood. Rome and the whole pagan world was mad.   But those who had had enough of transgression and madness, those who were trampled upon, those whose lives were misery and oppression, all the weighed down, all the sad, all the unfortunate, came to hear the wonderful tidings of God, who out of love for men had given Himself to be crucified and redeem their sins.

When they found a God whom they could love, they had found that which the society of the time could not give any one—  happiness and love."

Henryk Sienkiewicz, Quo Vadis: In the Time of Nero

The Epicenter of the Next Global Financial Crisis - Financial Dreadnoughts

The 'trigger event' for the next crisis could be elsewhere, someplace distant, and out of the way.  The first World War was ignited by a political assassination over a fractious disagreement in Sarajevo that engaged an international web of interconnections.

 

Granted that hubris was on a high note, particularly in Germany, and the system itself was fragile and deeply interwoven.

In the current global financial scenario, if the ripple of global interconnectedness reaches the New York (and European NationalBank Holding Companies), then the real crisis can take root and begin to knock down banks and national economies around the world.

12 Systemic Importance Indicators For US Bank Holding Companies

At that point the only rational response by the government would be to nationalize these Banks, and begin their orderly restructuring with losses ringfenced to investors and principals and creditors.

 

Of course that might not happen, since that was also the only rational response in 2008, and political power and influence and soft bribery prevailed.    And there has been very little reform, with the Too Big To Fail Banks becoming Too Big To Jail, and the real lords of the land.

 

Why do democratically organized nations allow such behemoths to grow even larger, and act with virtual impunity over the laws, and imperil their national health and welfare.   Because these outlandish financial monstrosities are the new battleships in a financial landscape in which political will controls money and wealth in ways never before seen, but far too often for the private gains of commercial moneyed interests.  War never changes.

And like the dreadnoughts from the last wars of the 20th century, they are already anachronisms, costing much more than they are worth.  The generals always seek to employ the old methods of warfare, even on unfamiliar landscapes.

 

Next time it looks like not only a 'bailout' but a 'bail-in' as well.   And the destruction of a free and honest financial system in the US will be complete.

 

Special thanks to Wall Street On Parade For this chart and the report link.

 

 

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. 

 

 

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.

China's Extreme Real Estate Bubble: Globalization Is a Fraud, a Castle Built On Sand

Quite a few people know about this, but they really do not understand it.  It is a fraud that surpasses by far any in history, including the South Sea and Mississippi bubbles.

China is an extreme bubble fueled by artificially low wages and an autocratic industrial policy that is distorting the economy of the entire world.

The monied interests of the West have been riding the trend of deregulation and globalization to their personal enrichment and benefit.  But it is an empire of illusion, with a foundation of sand, held in place by the corrupting power of money.

There are some ways out of this that the Chinese leadership might take, but I suspect that their powerful oligarchs will be caught in the same credibility trap that has kept Western leaders from taking the appropriate policy actions for the good of their own people.

This is a story of betrayal, powers and principalities, of the rulers of darkness in this world, and evil in high places.   And the Anglo-American establishment has played a key part in it.

Sorry for the commercials, but the video is worth watching because it carries a visual impact that words alone do not quite capture.

China's richest woman says in a related interview not included on the aired program that the 'Chinese people are craving for democracy.'

So are the Arabic people, and the people of Europe and the Americas, who often have the illusion of choice, from amongst a series of choices allowed by technocrats acting for a ruling elite.

Moyers and Wolff: Capitalism Has 'Hit the Fan'

"Even as President Obama’s talking points champion the middle class and condemn how our economy caters to the very rich, modern American capitalism is a story of continued inequality and hardship.

Even a modest increase in the minimum wage — as suggested by the president — faces opposition from those who seem to show allegiance first and foremost to America’s wealthy and powerful."

Bill Moyers, Taming Capitalism Run Wild

A symphony of greed.

I would lay the failure of capitalism, or more properly the lapse of market capitalism into crony capitalism and corporatism, at altar of the triumvirate of the false gods of modern economics: globalization, fiat currencies, and naturally efficient markets.

And of course the fact that it is no longer socially unacceptable to be a lying, cheating conman, as long as you are sucessful at it. Greed is good, and so the achievement of wealth by any means available, as long as you beat the system and don't get indicted, is the epitome of human achievement and worth.

The most insidious trend is the adoption of the 'just-world hypothesis' and a Darwinian rationalization in blaming the victims for the outcome of this flawed set of policies and sanctifying of success.

This will very possibly result in yet another century of turmoil, degradation, and blood.

Goldman, Banking, Washington, and Business Ethics: Cultural Observations from Two Smiths

"I'm a very firm believer that a liar is a cheat and a thief and a crook. I don't like liars. I never lie. I always told my own child, "If you murder somebody, tell me. I'll help you hide the body. But don't you lie to me."

"We don't pay taxes. Only the little people pay taxes."

Leona Helmsley


"There is not a more perilous or immoral habit of mind than the sanctifying of success.”

Lord Acton

I wish that C-Span would permit their videos to be 'embeddable.'

Greg's talk is excellent, and thanks to C-Span the video quality is good.


Greg Smith Speaking At Stanford on His Experience at Goldman and Reasons for the Corrosive Decline in Business Ethics


Speaking of excellent essays on corruption, Yves Smith has written a wonderful piece titled, Jack Lew’s Grotesque Citi Employment Deal and the Institutionalization of Corruption.

Corruption, facilitated by the credibility trap, is the biggest problem facing the West today. That is the real subsidy, the most debilitating entitlement.

It is the belief of the elite that the power of their office is an achievement that rewards them with the right to lie, cheat and steal, both for themselves and their friends.

Although it is most important to understand that they would be shocked and insulted if one uses those words, lie, cheat and steal, to describe what they are doing.  They view themselves as exceptionally hard working, as obligated by their natural gifts and superiority.

Through a long indoctrination that starts sometimes in their families, but is most often affirmed in their elite schools and with their circle of privileged friends, they learn to rationalize selective moral behaviour not as immoral but as 'the entitlement of success.'  And they are supported by a horde of morally ambivalent enablers who will tell them whatever they wish to hear.

There are one set of rules for themselves and their friends, and another set of rules for the rest.

Few who actually do evil consciously choose to be evil.  They rationalize what they do in any number of ways, but the deceit often hinges on their own natural superiority, and the objectification and denigration of the other.  We are makers, and they are takers. Although many may work hard, they see their own work as having special value and merit, while the actions of the others are inconsequential and unworthy.

Given enough time, their rationalizations become an ideology, desensitized to the meaning and significance of others outside their own select group.  This supremacy of ideology empties their souls, and opens the door to mass privation and even murder, although rarely done by their own hands.

This is what Glenn Greenwald calls 'justice for some.' Or even earlier what George Orwell captured in the slogan, 'Some animals are more equal than others.'

And just to be clear on this, with regard to the Anglo-American political situation, the tragedy is not that just some are corrupted, which is always the case. The tragedy is that the Democrats and the Labour Party learned that they could become as servilely corrupted by Big Money as the Republicans and the Conservative Party, while maintaining the illusion of serving their traditional political base.

And it has rewarded them very well in terms of extraordinarily well-funded political power, and almost unbelievable personal enrichment afterwards.  

In such a climate of corruption,  political discourse loses the vitality of ideas and compromise for the general good, and take on the character of competing gangs and crime families, engaged in aggressive schemes and protracted turf wars, tottering from one pitched battle and crisis to another.

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious hypocrisy.

And you know how I feel about this.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

The problem which the modern world has not yet grappled is how to react to the rise of a global elite, which considers itself the children of a power which is above national restraints, and a law unto themselves.

Their success has been propelled by the dominance of Anglo-American financialization, and the rise of oligarchies in Russia, China, Latin America, and India.  Countervailing power has been co-opted and subsumed.  Any opposition has become marginalized and isolated.

The new oligarchs are supported by their fiat currencies, which together the increase of insubstantial 'cashlessness' in wealth,  provides the ability to define and allocate value at will. 

They have a penchant towards globalization and deregulation to support selective justice, to the extreme detriment of local rule, and individual choice and freedom.   Above all, they are a law unto themselves, above what they consider subhuman restraint.  Übermenschen.

“Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn't succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today's super-rich are increasingly a nation unto themselves...

A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble."

Chrystia Freeland, The Rise of the New Global Elite

Of course this tendency is not new in history, as it is a facet of the human heart, and the empires of the past. But the scope of it is something rarely seen before this. And it is supported by technologies for mass action and control that seem terrifyingly powerful and new.

And as hard as it may be to believe, this too shall pass. But as always, we have some work to do in our own time.

“The mills of God grind slowly, yet they grind exceeding small;
Though with patience He stands waiting, with exactness He grinds all.”

Henry Wadsworth Longfellow

MIchael Lewis and the Heart of the US Economic Policy Failure and Crisis

"Corruption is a tree, whose branches are
of an immeasurable length: they spread
Everywhere; and the dew that drops from thence
Hath infected some chairs and stools of authority."

Beaumont and Fletcher, The Honest Man's Fortune

Michael Lewis has written an excellent pocket analysis of the financial crisis in The New Republic, in his review of Greg Smith's book about why he left Goldman Sachs.  I have to admit some prejudice, because he says all of the things which I have been saying, and says them very well.

Crony capitalism has always been with us, but it took wing in the 1990's, and has brought us to this place where we would not wish to be.

Michael Lewis does an excellent job of distilling the problem and its solution to the basics, without necessarily touching on the need to reform the political campaign process, and the revolving door that enriches the politicians and regulators through betraying the spirit, if not the technical word, of their oaths of office.

Is a policy error still an 'error' if it is done purposefully? 

I had hoped that Obama might have risen above that as an 'outsider' with a mandate for change, but that notion was quickly dispelled in his first 100 days in office.  He has pursued a policy of subsidy and appeasement and failed leadership that is killing the legacy and effectiveness of his administration, but enriching many participants in the process. And it works, because the US has become a culture of personal greed. 

One can speculate on motives endlessly, but we'll leave that one to history.  The end result remains the same.  And the pity is that the 'opposition party' is even worse, even more servile to special interests.

And the oddest thing is that this is almost a general phenomenon throughout the developed world, and not some anomaly of the US. And the culture of greed and economic repression was spread by highly placed political appointments affiliated in many cases with the same handful of US-UK banks.

In the aftermath of the first Great Depression there was a general spread of militant fascism, and a great world war.  So why not a rise of oligarchies employing financial repression this time, with a global currency war?  There appears to be some precedent of corruptible, power mad people rising to the occasion.

The Western governments have come to resemble competing crime families, more than an open democratic process of policy formulation for the good of the entire nation through constructive give and take.  It's mostly take, with the common people being taken, while the media and the pundits weave an alternative reality for them with words and emotion.

So, here we are.

What do you want to do tonight, Marty?

"Stop and think once more about what has just happened on Wall Street: its most admired firm conspired to flood the financial system with worthless securities, then set itself up to profit from betting against those very same securities, and in the bargain helped to precipitate a world historic financial crisis that cost millions of people their jobs and convulsed our political system.

In other places, or at other times, the firm would be put out of business, and its leaders shamed and jailed and strung from lampposts. (I am not advocating the latter.) Instead Goldman Sachs, like the other too-big-to-fail firms, has been handed tens of billions in government subsidies, on the theory that we cannot live without them. They were then permitted to pay politicians to prevent laws being passed to change their business, and bribe public officials (with the implicit promise of future employment) to neuter the laws that were passed—so that they might continue to behave in more or less the same way that brought ruin on us all.

And after all this has been done, a Goldman Sachs employee steps forward to say that the people at the top of his former firm need to see the error of their ways, and become more decent, socially responsible human beings. Right. How exactly is that going to happen?

If Goldman Sachs is going to change, it will be only if change is imposed upon it from the outside—either by the market's decision that it is no longer viable in its current form or by the government's decision that we can no longer afford it. There is a bizarre but lingering aroma in the air that the government is now seeking to prevent the free market from working its magic in the financial sector-another reason that the Dodd-Frank legislation is still being watered down, and argued over, and failing to meet its self-imposed deadlines for implementation.

But the financial sector is already so gummed up by government subsidies that market forces no longer operate within it. Could Goldman Sachs fail, even if it tried? If someone invented a cheaper way to finance productive enterprise, would they stand a chance against the big guys?

Along with the other too-big-to-fail firms, Goldman needs to be busted up into smaller pieces. The ultimate goal should be to create institutions so dull and easy to understand that, when a young man who works for one of them walks into a publisher's office and offers to write up his experiences, the publisher looks at him blankly and asks, 'Why would anyone want to read that?'"

Michael Lewis, The Trouble With Wall Street

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

Bill Gates: China Has Created a New Form Of Capitalism

 

This is an old story from 2005. It is getting harder to find on the web, and so I wanted to copy it here for future reference.

I remember vividly when this came out, because only a month or two before Mr. Gates had reportedly condemned the Opensource software movement in the west as the work of 'communists.'

Irony is like candy to the restlessly cynical mind.

Now we must keep in mind that this story was written before the suicides at the factories like Foxconn in China, that exposed the horrific working condition in those cheerless and faceless manufacturing combines where people live and work like indentured servants or serfs. And we do not know what Bill Gates was shown or told during his official visit to China.

I imagine it was also before the Chinese provoked him for the serial violation of his copyrights. Funny how regulation and good government protects property from unbridled, unprincipled greed for the same people who abhor the protections it might also provide for their workers and customers.

And he was certainly not alone in his opinion at that time. Walmart was actually requiring their key suppliers to shift manufacturing to China to break the back of US labor for their stores, and engage a spiral of lower costs for a competitive advantage.

In the technology sector there was a mass migration to the big box factories with their wonderfully 'low medical and legal overheads.'

And I question how really 'new' this 'new capitalism' might be. It sounds quite a bit like the old British East India company to me, without the gin and tonics.

The neo-liberals economists were gung ho for this, and Clinton and his administration was smoothing the way for them, even before the arrival of Bush II on the scene, who delivered the coup de grace. By the way, remember that scandal involving large campaign contributions from official Chinese sources?

As I recall a certain number of venture capital firms made quite a bit of money encouraging that trend. And that has not stopped some of them from running for President. So one might not be hard at all on Bill.

But I did not appreciate his reported remarks about Opensource which I think is a marvelously capitalist free market force for the busting up of inefficient, overpriced, and underachieving software monopolies, which are too often only challenged by other would be monopolies.

This article struck a chord in me at the time, and I wanted to preserve it, and share it with you.

China has created brand-new form of capitalism: Bill Gates

Sat Jan 29, 2005 3:49 AM ET

DAVOS, Switzerland, (AFP) - US software giant Bill Gates (news - web sites) has high praise for China, which he says has created a brand-new form of capitalism that benefits consumers more than anything has in the past.

"It is a brand-new form of capitalism, and as a consumer its the best thing that ever happened," Gates told an informal meeting late Friday at the World Economic Forum (news - web sites) in this ski resort.

He characterised the Chinese model in terms of "willingness to work hard and not having quite the same medical overhead or legal overhead".

Manufacturers have created "scale economies that are just phenomenal", in part owing to companies there and elsewhere on the planet designing good products, Gates said.

Looking ahead, he added: "You know they haven't run out of labor yet, the portion that can come out of the agriculture sector" was still considerable.

"It's not like Korea, Korea got to a point where, boom, the wages went up a lot," he said, adding "that's good, you know, they got rich and now they have to add value at a different level.

"They're closer to the United States in that sense than they are to where China is right now."

Gates continued by heaping praise on the current generation of Chinese leaders.

"They're smart," he said with emphasis.

"They have this mericratic way of picking people for these government posts where you rotate into the university and really think about state allocation of resources and the welfare of the country and then you rotate back into some bureaucratic position."

That rotation continued, Gates explained, and leaders were constantly subjected to various kinds of ratings.

"This generation of leaders is so smart, so capable, from the top down, particularly from the top down," he concluded.

US Ranks Fourth In Global Competitiveness

I think the biggest surprise for US readers might be how high the US ranks in global competitiveness, and the countries that rank the highest. And of course there is the absence of China in the top ten. Shocking when viewed through the lens of an artificially managed-to-the-dollar currency pair.

Obviously having low paid and poorly treated workers is not the primary qualification for global competitiveness, at least in this national scaling. But it does seem to be a preoccupation of a significant portion of the Anglo-american crony capitalist elements which have never quite reconciled themselves to the laws against indentured servitude.

GenevaLunch
World Economic Forum Competitiveness Report: US falls to 4th place
10 September 2010

Geneva, Switzerland - Switzerland leads the pack, with Sweden and Singapore in second and third places respectively, and the United States in fourth in the latest edition of the World Economic Forum (WEF) Competitiveness Report, published Thursday 9 September. The US has slipped two places, after being overtaken in 2009 by Switzerland. The WEF attributes the lower ranking to “In addition to the macroeconomic imbalances that have been building up over time, there has been a weakening of the United States’ public and private institutions, as well as lingering concerns about the state of its financial markets.”

The report uses two sources: publicly available data and a survey of business leaders, with 13,500 business people in 139 “economies” queried for this year’s report. It contains more than 100 indicators for each country, part of the detailed country reports. “The survey is designed to capture a broad range of factors affecting an economy’s business climate. The report also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform,” notes the WEF press release on the new report.

Nordic countries remain strong, says the WEF, with four of them in the top 15: Sweden (2), Finland (7), Denmark (9) and norway (14). China “continues to lead the way among the top developing countries” according to the report: it improved two places and is now ranked 27.

North African countries are competing more strongly, with several of them in the top 50.

Switzerland ranked number one in several areas in the report:

institutions, infrastructure, health and primary education, and financial market development. It was in the top five for labour market efficiency, technological readiness and innovation, giving it one of the top five slots in seven of the 12 indicators.

The most problematic factors in doing business in Switzerland remain inefficient government bureaucracy, tax regulations, restrictive labor regulations and access to financing.

Read the full report here

Goldman Faces "Near Record Fine" In London

Even this 'near record fine' is likely to be little more than a wrist slap, a manageable cost of doing business compared to the massive profits and bonuses obtained from such dealings.

It appears that financial regulations such as the Volcker rule are getting some traction with Goldman and their ilk, compelling them to spin off their proprietary trading desks to institutions that do not drink so directly from the subsidies of the Federal Reserve.

Still, regulation is not a set of rules, but a mindset to enforcement and investigation for the many, with no favoritism shown to the powerful few.

Financial fraud has been a major export from the US for the past ten years. As we have noted elsewhere, New York financial firms may find themselves persona non grata in many of the overseas markets, especially the sovereign financial asset markets, which they have abused repeatedly from their US and London centers.

Financial Times
Goldman now faces large fine in UK
By Megan Murphy and Brooke Masters in London
and Francesco Guerrera and Henny Sender in New York
September 8 2010 20:05

Goldman Sachs is facing a near-record fine from the UK’s financial regulator following a five-month investigation into the investment bank’s international business initiated in the wake of fraud charges against the company in the US.

The fine, which could be announced by the Financial Services Authority as early as Thursday morning, will deal a blow to Goldman’s efforts to put the high-profile fraud case behind it following the bank’s settlement with the US Securities and Exchange Commission probe in July for $550m.

The largest fine handed down by the UK regulator came three months ago, when JPMorgan paid a £33.3m for failing to keep client money in separate accounts.

Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.

The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.

On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman Sachs’ proprietary trading group that could lead to the hiring of a number of Goldman’s key people.

In settling the Abacus case with the SEC, Goldman said it made a “mistake,” but it neither admitted nor denied the agency’s allegations. Fabrice Tourre, the Goldman trader whose boastful emails about the deal were at the centre of the complaint, is still fighting charges brought against him by the SEC.

People familiar with the fine that will be levied on the bank by the FSA say that it is not based specifically on the Abacus transaction, but is the result of its investigation into the bank’s business practices in London sparked by the SEC allegations.

The FSA’s decision to launch its own inquiry, announced four days after the SEC case, was questioned by some legal experts at the time given that the Abacus deal was structured in the US. However, the SEC alleged that one of the biggest losers was IKB, the German bank

How I Learned to Stop Worrying And Love the Currency Collapse

The title is a reference to the culturally significant film, Dr. Strangelove, a satire on the fear of nuclear war that was so integral to the post war generation in the US.

If one reads this carefully, the BIS is really referencing a devaluation of about 22% which is hardly 'a collapse.' Here are some examples of post WW II currency collapses.

It depends on the timeframe, specifically the rate and extent with which the devaluation occurs. Also, it matters about what the devaluation has been against. Is it a relationship primarily to a reference point like the US dollar, largely affecting a narrow band of imports, or is it a true and general devaluation marked by soaring prices and monetary inflation domestically.

As I recall, China devalued the yuan by about 33% in the 1990's, and then pegged to the dollar, while 'persuading' first Bill Clinton (remember the Chinese campaign contributions scandal) and then George W. (whose family has a long history of supporting tyrannies for personal economic preferences) to allow them to maintain favored nation status, with the dispensation of 44% import tariffs, even while maintaining an artificially devalued currency, under full currency controls, and that fixed in a peg to the dollar.

"I am moving, therefore, to de-link human rights from the annual extension of Most Favored Nation trading status for China." --President Bill Clinton, announcing MFN status for China, White House, 5-26-94.

1994, Jan. 1 – China unifies its dual exchange rates by bringing the official and swap centre rates into line, officially devaluing the yuan by 33 percent overnight to 8.7 to the dollar as part of reforms to embrace a “socialist market economy”.

As you may recall, in 1994 Bill Clinton also pushed through the NAFTA agreement which, in his words, would 'level the playing field' for American, Canadian, and Mexican workers. Only a few really understood the inherent danger in leveling the field without a thorough integration. The current Greek dilemma is a good example of a halfway done scheme in which monetary policy does not match up well with fiscal policy and national temperament.

When one uses globalization of trade to 'knock down barriers,' among the barriers that are placed at risk are things like the Constitutional safeguards which a free people enjoy in their own domestic method of organization, such as healthcare, the right to organize, freedom from indentured servitude, child labor, individual rights, and so forth.

These are the very barriers against the tyranny and despotism of the few on which the country was founded in a dramatically historical rebellion of the common people against the injustice of autocrats and empires. This was the rationale for the great Wars. Well, the one world government types play the long game, and if at first you do not succeed...

So yes, in this case China was able to export their structural employment problems largely to the US, which gutted its manufacturing sector primarily for the benefit of the Banks, who were able to cash in on the 'strong dollar' and the decline of government protection for its citizens from criminal control fraud.

Personally I think that high tariffs on Chinese goods would work much better for the US than a general currency devaluation per se given its position as a net importer, The downside would be that in the short term there would be less of a market for the export driven debts incurred by supporting the development of a non-democratic country engaged in blatant currency manipulation and mercantilism.

But do not fear, enough palms have been crossed so that one would never expect a simple solution to occur. Political and financial fraud dwells in the realms of artificial complexity. And the competitive but managed devaluations of currencies will serve to transfer more wealth from the many to the few quite well, a sort of hidden tax on the mob, while the wealthy continue to benefit.

But then again, the BIS may just be priming us for a crisis to come, which is consistent with the steady but quiet migration into gold by the wealthy, despite the propaganda they might put out for the masses to hear. As Pliny the Elder observed, "Ruinis inminentibus musculi praemigrant:" When collapse is imminent, the little rodents flee.

As an aside, here is a fairly good example of a man's thinking. Notice how Keynes changed his views of globalization from the euphoria of the British empire expressed the famous passage in "The Economic Consequences of the Peace" in 1920 which sounds like an Ode to the British Empire:

"What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice."

After a period of years we can see his shift in thinking, albeit reluctantly and with many caveats, towards practical National Self-sufficiency in 1933.

"I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage. I thought England's unshakable free trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before Heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental "truths" which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words...It is a long business to shuffle out of the mental habits of the prewar nineteenth-century world. It is astonishing what a bundle of obsolete habiliments one's mind drags round even after the centre of consciousness has been shifted. But to-day at last, one-third of the way through the twentieth century, we are most of us escaping from the nineteenth; and by the time we reach its mid point, it may be that our habits of mind and what we care about will be as different from nineteenth-century methods and values as each other century's has been from its predecessor's...For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years...I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction."

I wonder if he lived today Keyens would agree that globalization leads inevitably towards restraints among nations, and a bias towards one world government. I think he would, and he would not be favorable towards it. Make no mistake, some view this favorably as the final solution to managing the unruly masses, and preventing the wastefulness of war and sub-optimization of individual choice by those who they consider and portray as unfit to rule themselves. The shift in Keynes thought is unmistakable, and I admire the self-knowledge he portrays in analyzing, examining, and understanding his own prejudices. It takes a great mind to rise above oneself and their own age.

Quite frankly I do not expect the Fed and Treasury to ever let go willingly of the reins of the economy, or reigns of power if you will, through their aggressive financial engineering in partnership with the Banks. A return to normal will not be achieved without a significant amount of effort, conflict and most likely, pain. It appears to be unavoidable now. As you may recall, Dr. Strangelove was insane, and his dark vision affected the politicians around him. One has to wonder if Barack, Ben, Tim and Larry have their reservations made for a place in the mineshafts.

The customary price of freedom will be paid, as always. The light of freedom may be extinguished for a time, but like a spark that is cherished in thoughts and hearts of the true, will remain to be revived again on some future day.

Bloomberg
Currency Collapse May Stimulate Economic Expansion, BIS Says
By Matthew Brown

June 14 (Bloomberg) -- Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements.

Currency collapses are associated with permanent output losses of about 6 percent of GDP, on average, though the drop tends to appear beforehand, the Basel, Switzerland-based BIS said in its quarterly review yesterday.

“This suggests that it may not be the currency collapse that reduces output, but rather the factors that led to the depreciation,” Camilo E. Tovar wrote in the study. “To gain a full understanding of the implications of currency collapses on economic activity it is important to carefully examine the full circle of events surrounding the episode.” (How about the utter destruction of savings and the impoverishment of millions? That has a dampening effect as I recall from the stories that my grandparents told. - Jesse)

The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said.

“They also occurred under all types of currency regimes, except possible floating-exchange-rate regimes, where there are simply too few observations to obtain meaningful estimates,” the BIS said.

Economic Contraction

The euro tumbled about 20 percent against the dollar between Nov. 25, 2009, and last week as investor concern over record budget deficits in countries including Greece spurred speculation the 16-nation currency union may split. The European Union in May crafted a 750 billion-euro ($908 billion) rescue package to stem the crisis.

Greece’s economy will contract 3.9 percent this year and 1.2 percent in 2011, after shrinking 2 percent in 2009, according to the median of eight economist estimates compiled by Bloomberg. The euro-region will expand by 1.1 percent this year and 1.5 percent in 2011, after falling 4.1 percent last year, median forecasts show.

Hans-Werner Sinn, president of Germany’s Ifo economic institute, said on June 3 that it would be best for Greece to leave the euro instead of implementing an austerity program to reduce its deficit. Greek Prime Minister George Papandreou pledged budget cuts worth almost 14 percent of GDP to bring the deficit within the EU limit of 3 percent by the end of 2014.

“The real solution for Greece would be to leave the euro followed by a depreciation” of the new currency, Sinn said in an interview at a conference in Interlaken, Switzerland.

Growth May ‘Dominate’

European Central Bank Executive Board member Lorenzo Bini Smaghi said on May 28 that there are “no alternatives” for Greece beyond following the austerity program.

“Before drawing policy conclusions we should emphasise that these results are subject to a number of caveats,” the BIS said in the report. “Most importantly, the analysis does not address the reasons why currency collapses occur in the first place. Our analysis also has little to say about the mechanisms involved after the currency collapse takes place. While we cannot disentangle the various factors, our results do suggest that expansionary mechanisms tend to dominate.”

Italy Seizes Bank of America Assets In Derivatives Fraud Probe

"more than 519 municipalities that face 990 million euros in derivatives losses"

As the quote indicates, its a big problem, and Bank of America is not the only bank involved. But they are a big player, and actively using derivatives to 'rip customer's faces off' as they saying goes.

Why does this happen? Bank of America just announced they will be paying, on average, a $400,000 bonus per employee for this year past. Any fines or penalities that are incurred from offenses are treated as a cost of doing business.

Crime does pay in the short term. Especially if you can buy off the government and co-op the regulators of a major developed nation. When someone succumbs to fraud, there is a tendency to blame the victim. The purpose of the law is to protect the weak. Perhaps they could have been more vigilant, but this in no way diminishes the guilt of the perpetrator, and the likelihood that this is something they have been doing in many places over a period of time, with a growing level of sophistication.

People argue that if a nation sets rules for banks, they will just move offshore and keep doing business in any way that they please. This is intended to undermine any reforms and the rule of law.

It is possible to ban a company from doing business in your nation if it engages in unlawful practices. As noted here previously, Citi was engaging in trading practices in Europe and Japan that put them on the receiving end of bans for fraud.

Globalization is used as a rationale for stripping nations of their sovereign rights, and the people from their ability to rule and protect themselves in accord with their own beliefs and preferences.

Why people accept this nonsense when it applies to the financial sector is amazing. Well perhaps not, given the force of a steady propaganda that has been promoting it for the past twenty years.

The truth is ugly when you see it in plain black and white. The US is a relative safe haven for multinational corporations that engage in various forms of fraud and market manipulation around the world, like modern day privateers. It appears unable to regulate them because of widespread political corruption and the self interest of its monied elite.

Corporate privateering in partnership with the state has been a perennial problem in developing nations, especially in South America and the western Pacific. But the economic hitmen are ranging further and wider these days, in search of greater profits and new fields of plunder, and in developed nations. Iceland and Greece are one thing, but if a G7 nation like the UK falls prey to the banks, the reaction may be severe.

This theme of national sovereignty versus corporatism will gain more traction over the next five to ten years.


Bloomberg
Italy Seizes Bank of America, Dexia Assets in Derivatives Probe
By Elisa Martinuzzi

Feb. 3 (Bloomberg) -- Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.

The police are sequestering a further 30 million euros that the municipality was set to place in a fund managed by the banks on Feb. 6, according to an e-mail from the prosecutor’s office in Bari today. The prosecutor also asked that Charlotte, North Carolina-based Bank of America be banned from doing business with Italian municipalities for two years. A hearing is slated for next month.

Prosecutors allege that when the banks arranged swaps and created a fund that invests money the region set aside to repay 870 million euros of borrowings due in 2023, they misled the region about the economic advantage of the package. Banks skewed the swaps to their advantage to hide fees, the prosecutor said.

Apulia, located in the heel of Italy, joins more than 519 municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG and requested they stand trial for alleged fraud. Hearings started in Milan this month...