The Political and Economic Continuum: Where Are We Today, Where Are We Going?

This essay from the International Herald Tribune is a sound analysis of where we are now and where we have been. It reinforces our notion that the old ways of approaching problems have failed. A new school of economics will rise out of the ashes of the economic failure to come as Keynesianism rose out of the Great Depression, as monetarism rose out of stagflation.

With regard to free market capitalism, we still think it is the best approach to a well-functioning society, but would like to see a return to it at least here in the United States. Sociopathic elements always try to corrupt the game, replacing the meritocracy with oligopoly and competition with monopolistic croney capitalism. Freedom is not a goal; it is a way of life.

The solution seems obvious: a society of laws that respects the rights of the individual to both excel or just get by in a meritocracy, with an equitable distribution of goods with a reasonable variation based on effort and ability, enforced with equal justice. The trick seems to be not imagining a solution, but rather in implementing it, achieving it, and keeping it.

The dynamic tension is not between the traditional right and traditional left in politics. That is largely a matter of preference between the amounts of tradition and progress, and the rate of societal change. The genuine conflict is between the power of the state and of the individual, between the will to power of an elite and the broad rights of the individual to life, liberty and the pursuit of happiness.

The extremes of both Left and Right meet in the same place: Stalin and Hitler, the all-consuming state and the complete diminishment of the rights of the Individual.

"The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite." - Thomas Jefferson

"Sell not virtue to purchase wealth, nor Liberty to purchase power." Benjamin Franklin

"The only sure bulwark of continuing liberty is a government strong enough to protect the interests of the people, and a people strong enough and well enough informed to maintain its sovereign control over the government." - Franklin Delano Roosevelt

Benjamin Franklin was approached by a group of citizens asking what sort of government the delegates had created. His answer was: "A republic, if you can keep it."

The failure of neo-liberalism
By Phillip Blond
Tuesday, January 22, 2008
LANCASTER, England

More and more, it appears that in the 21st century we are returning to the economics of the 19th, where wealth was overwhelmingly concentrated in the hands of a few owners and astute speculators.

Neither the Right nor the Left seem capable of creating a society in which all benefit from increased prosperity and economic security.

Right-wing claims that free markets will enrich all sections of society are palpably false, while the traditional European welfare state appears to penalize innovation and wealth-creation, thereby locking the poor and unskilled into institutionalized poverty and unemployment.

Thus in the new age of globalization, both ideologies create the same phenomenon: an underclass caught between welfare and low wages, a heavily indebted middle class increasingly subject to job and pension insecurity and a new class of the super rich who escape all rules of taxation and community.

It was in Britain that neo-liberalism first emerged in its decisive form. Confronted with union militancy and the apparent bankruptcy of the welfare state, the Conservative party under Margaret Thatcher was elected in 1979. In America, Ronald Reagan took office in 1981, and the Anglo-Saxon countries have pursued and advocated free market liberalization ever since.

Today, its reach extends as far as communist China, which, while eschewing political freedom, fervently preaches economic liberalization. This year even the French acknowledged free market supremacy, electing a president who has persistently denounced the costs of Gallic welfarism and praised the economic advantages of the Anglo-Saxon model.

But the benefits of free market liberalization depend on who you are, where you are and how much money or assets you had to begin with.

In terms of economic development, free market fundamentalism has been a disaster. The free market solutions applied to Russia during the Yeltsin years succeeded only in mass impoverishment, the creation of a hugely wealthy oligarchical class and the rise of an authoritarian government.

Similarly, the growth rates of Latin America and Africa, which had been higher than other developing nations, dropped by over 60 percent after they embraced IMF-sponsored neo-liberalism in the 1980's, and have now ground to a halt.

On an individual level, a similar story pertains. Real wage increases in the top 13 countries of the Organization for Economic Cooperation and Development (OECD) have been below the rate of inflation since about 1970.

Thus wage earners - rather than asset owners - have faced a persistent 30-year downward pressure on their standard of living. It comes as no surprise to learn that the golden age for the wage worker, expressed as a percentage share of GDP, was between 1945 and 1973, and not under economic liberalization.

Nobody questions that trade increases prosperity, and that the liberalization of credit and financial services allow hitherto excluded groups to supplement their wages by buying shares or houses and thus participating in the asset economy.

But the real story of neo-liberal success is not the extension of assets to all, but the huge and disproportionate share of wealth attained by the very rich. In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That's a wealth transfer from the large majority to a tiny minority of some $664 billion.

The traditional Left panicked in the face of neo-liberal hegemony and spoke in the 1980's of redistribution, higher taxes and restrictions on capital transfers. But, outside of Scandinavia, they were whistling in the wind: Traditional state-regulated economies appeared locked into high unemployment and low growth.

A new path for the Left was offered by the country that first experienced the new Right: the UK. By the late 1990's, Britain was exhausted by Thatcherism; its public services were failing and the country was socially and economically fragmented. Thus in 1997 New Labor was elected.

Under the guidance of Tony Blair and Gordon Brown, the new progressives promised that the benefits of rising prosperity would be applied to the public sector and the poor. Social exclusion would be tackled by opening up education and extending opportunity to all. The rest of the world was once more transfixed by the social experiment taking place in Britain. Could this seemingly exclusive neo-liberal circle be squared for the benefit of all?

Sadly, after 10 years the conclusion has to be no.

Poverty in Britain doubled under Thatcher, and this figure has become permanent under New Labor. The share of the wealth, excluding housing, enjoyed by the bottom half of the population has fallen from 12 percent in 1976 to just 1 percent now. Thirteen million people now live in relative poverty. Social mobility has declined to pre-war levels.

The least able children from the richest 20 percent of the population now overtake the most able children from the bottom 20 percent by the age of seven. Nearly half of the richest group go on to get university degrees while only 10 percent of the poorest manage to graduate. Clearly, the New Left has entrenched class division even more firmly than the neo-liberal Right.

This in a nutshell is the problem: Both Left and Right seem incapable of challenging monopoly capitalism. Neither welfarism nor statism can transform the lives of the poor, and neither, it seems, can neo-liberalism. Only a shared economy can correct the natural tendency of the free market to favor monopolies.

But we can only share if all own. Thus there is a radical and as yet unexplored possibility - that of a general and widely distributed ownership and use of assets, credit and capital. This would dissolve the conflict between capital and labor since it would be a market without monopoly and a state where waged labor - since it was the owner of capital - did not need state welfare.

Phillip Blond is a senior lecturer in philosophy and theology at the University of Cumbria.

The Failure of Neo-Liberalsim

„Niemand ist hoffnungsloser versklavt, als die, die fälschlicherweise glauben, sie seien frei.“
(None are so hopelessly enslaved as those who falsely believe they are free.)

J. W. von Goethe

Gold Daily and Silver Weekly Charts - The Careless Few and Their Tower of Babel

Gold and silver marked time today, after the fairly heavy handed smackdown from last Friday in honor of our Non-Farm Payrolls report.

 

There was some small bleeding of bullion out of the bucket shop's warehouses as noted in the reports below, but little else of note. 

 

I am reassured by some very serious people that the West's gold is not flowing East.  It is merely disappearing from here, and apparently reappearing as imports into China, Russia, the Mideast, and India there. 

 

There is nothing to see here, so move along.  Our gold is going nowhere, and their gold is apparently just apparating, like Harry Potter.  Although Harry could not have managed such a nice lingering illusion of paper as he scooted off with our gold into the Vanishing Cabinet on the Thames.  Wingardium leviosa!

 

The trick is to concentrate intently on the details, to become mesmerized by them, and to ignore all the rest.  Remember the Three D's: Destination, Determination and Deliberation.  Germany can't get their gold back?  Gold is stupid, and they don't need it.  And so moving right along...

 

I am looking into this news that HSBC is closing seven of their customer gold vaults in London.  I am a bit behind the curve today for personal obligations.  I do not know if this signifies anything yet.  But I do suspect that this will open up quite a bit of useful closet space for the globally careless few who are simply flocking in droves to London real estate like flies to honey, or whatever other propensities that flies may have.

 

I have guest posted a rather good summary of the US economic situation by C. K. Michaelson titled The Minority Report which you can read here.

 

There was also intraday commentary about the state of economic and public policy thought here.  I made some revisions to the chart of the continuum of economic and political philosophy and you may wish to take a look at it, to see if it is now a bit clearer. 

 

Putting a great deal of information and concepts into a meaningful but simple and concise format is always the most difficult challenge.  Especially when the modern impulse is to expend the greatest amount of complexity and mostly irrelevant detail on the simplest of canards.  The currency and class wars are growing this into a thriving cottage industry in support of our export of frauds and domestic deceptions.

 

One thing that struck me today is that, although we may be in difficult economic straits, we are certainly blessed with some of the most skillful and ardent professional liars in the world, if not in all of history. 

Their artfulness in distorting the facts, and in sweeping inconvenient facts aside by exploiting relatively inconsequential details, is almost astonishing. And their shameless diligence in the pursuit of wealth through deception is almost herculean.

We truly excel in our treachery, and as a nation, we can certainly be proud of it, of making good look false, black as white, of murder as human kindness, and the most ruthless and self-serving plunder and repression as the finest expression of the human spirit.

 

As Michael Parenti said, 'The enormous gap between what US leaders do in the world and what Americans think their leaders are doing is one of the great propaganda accomplishments of the dominant political mythology.'

 

Never have so many, sacrificed so much, for such an undeserving and deceitfully careless few. 

 

Better call Saul.

 

Have a pleasant evening.

 

 

 

 

 

Gold Daily and Silver Weekly Charts - Distorted Markets, Financial Sophistry, and Moral Hazard

There was intraday commentary here that included an interesting perspective from the audacious one percent and their enablers.

And there was another about the current state of political discussion in Britain, a recent awkwardly stated reflection by the Prime Minister that may have revealed the mindset of their powerful, and its possible relationship with the continuum of politics and 'statism' here.

Oddly enough, both seem to have some implications for another question that was raised by a reader who shared this from another site. It was in reference to a posting earlier this week at Le Café that showed that the number of potential claims on actual available gold at the Comex was back to a record high.  

 

And it is further related to a familiar theme about the relationship between a thing masquerading as a market, The Bucket Shop on the Hudson, and THE marketplace for precious metals in Asia and the Mideast.  And the potential longer damages implicit in their protracted divergences.

"It is not meaningful that there are 107.7 claims per registered ounce. you should consider that the ratio between paper SPY and real SPY is infinity.

You are making the fundamentally flawed assumption that you need a physical commodity to determine price. You do not.

It doesn’t matter how many physical ounces there are per claim. It can be 1 or 1000 or 107.7 or infinity and it simply doesn’t matter.

The purpose of commodity markets is not to trade commodities, it is to determine price. There are zero SPY physical contracts and the market works just fine.>

I was a commodities broker and part of the test is to ask the function of commodity markets. Every commodity broker understands you don’t need a physical product.

It’s not a broken system, it’s existed in one form or another for a longer time than currency in any form. But to use it you have to understand it and you do not.

Everyone who owns physical gold or silver bought it with paper. There is no difference, they are fungible. The only difference is the price you are willing to take or to give. Physical and paper are exactly the same.

Saying that financial markets are manipulated is about as meaningful as saying the sun rises in the East. Well, duh?"

What this person is saying is that price really has nothing to do with actual supply and actual demand for a physical thing.   And much worse, they seem to have a remarkable disregard for risk and leverage.  I was originally going to ignore this since it smelled like teen spirit.  But when they came back and announced their expertise, how could I resist using this as an occasion of some education.

Futures are derivatives, bets. They are wagers that are indicative of where professionals think that price is going, should be going, given a set of known and unknown factors with certain assumptions and other factors, including fraud and gaming the system with bluffs, etc.

These types of futures markets began as a means for people who actually used and supplied things like commodities to factor in the risk in the 'future' and to essentially spread the risk around.

The 'futures market' is not the market.   No derivatives market is the market.  It is a reflection of THE market, and that reflection or representation varies in its quality and efficiency from market to market and over time.   This is why we have rules and regulations and enforcement.

A derivatives market is a creature of risk arbitrage, and leverage, and it is a reliable indicator of price to the extent that risk is correctly perceived and priced, leverage managed, and these exchanges are REGULATED against the short term gaming that speculators are often wont to do. 

I really do not blame the guy who thinks these things in his statements above since he knows what he has been taught, and what the financiers think these days are distorted by moral hazard.

The notion that the paper markets can set prices as they will without regard to risk or leverage is a not uncommon assumption held by those in the pursuit of unearned wealth.  That is why we have market crises and crashes.

This willfulness of paper is at the heart of some interpretations of Modern Monetary Theory that enthrones the principle of fiat in determining value above all other considerations, including the willingness of actors in the physical marketplace to accept it at a stated value.  At its worst it is a reflection of a kind of statism.

This flawed assumption of the extensible power of fiat is the basis of every black market and currency crisis in history. 

Commodities are different than stocks, because a stock is itself a derivative wager, a share in the future profits, dividends, and losses of a company.   How can any broker fail to know that?  Pretty basic stuff.   That is the difference between buying bullion and a mining stock.  A futures contract is a promise to buy and sell a thing at some future date.  It is not the thing itself, but it is based on the promise that you CAN do what you say you do.

Like the famous short seller Daniel Drew once said, 'He who sells what isn't his'n, must buy it back, or go to prison.'   But it is not always just a matter price to someone who might really wish to have the thing with they think they are purchasing.

I understand the mindset.  I really do.  It is the same mindset that Kyle Bass calls out in his video below about the Comex about why he chose to take delivery of his gold out of a sense of fiduciary responsibility. 

Commodities are by definition a real thing, and are not totally fungible with paper money at any and all times at a set price.  I think this is the MF Global school of thought, and it is fraught with injustice and moral hazard.  And it is nonsense to think that paper can paper over any and all action or any excess, except in a nation of willful thugs acting in a web of lies that come crashing down periodically.

If you believe in the pricing of things without reference to supply, demand, time, and risk, I invite you to go for a very long and solitary walk into the Sahara Desert, with only the price of a couple of gallons of water and a hotel room in New York in paper dollars in your pocket. 

Enjoy the refreshing and thirst quenching crunch of paper and your comfortable bed of sand.

It is a broken system in which these types of wagers can set price without reference to a realistic set of expectations based on supply, demand, leverage, and risks.  This is where bubbles are born and frauds dwell.

Leverage is a component of risk, but given the state of things, I feel the need to call it out separately since it seems to be fashionable now amongst 'market professionals' to believe that leverage is irrelevant to the point of infinity.   Maybe it is when you are playing with other people's money, and there are no consequences for your actions.

Such a self-referential system does not properly allocate capital for future investment in supply.  It does not inform the planners of changes in consumer interest, and the state of their own needs and conditions.  It does not give consumers the surety that they can actually obtain what they need and when they need it, and not be forced to accept some substitute at a dictated 'price.'

This sort of nonsense used to be relegated to the intraday antics, in which markets are just a voting machine, but you could rely on markets on the longer term to obtain some greater efficiency. The breakdown is that the grift has completely taken over, thanks to the policy errors of the Fed and the regulators.

The financial markets are an enabler, and not an end unto themselves.   And when they lose their proper place in the bigger scheme of economic things where the real markets and people exist, it is because of the moral hazards of an outsized and over-leveraged financial sector. 

It may take some time to catch up with us, but we know that at some point there will be hell to pay in the real world.   And there are those who simply do not care, who are sure they can just take their loot and blithely walk away, if they ever bother to think that far ahead.

How can we not see this lesson now, after all that we have seen and been through over the past twenty years?

We seem to be relearning that lesson about every seven or eight years, and then forgetting.  And until the consequences of their actions are visited on these infantile masters of the universe, I suspect we will have to keep relearning them because they are certainly not going to stop on their own.

 

This is the point of madness to which the sophists of finance have brought us, for any variety of motives.  I don't really care to discuss it any further with these sociopaths and willful fools at this late stage and after the carnage they have created.  It makes me sick to even think any longer about it and where it may be bringing us.

If you do not get this by now, then you probably will not 'get it' until you are searching in the rubble for your face after the next financial crisis. 

Have a pleasant weekend.