Guest Post: The Global Economy Burns, While its Leaders Fiddle

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Submitted by Nomi Prins

The Global Economy Burns, While its Leaders Fiddle

China is by no means a panacea of
economic equality or perfect policy. It has a fast growing portion of
billionaires and accounts for nearly a third of the world’s luxury goods
consumption, while its per capita GDP ranks 125th globally, and 2.8% of Chinese live below the poverty line (according to ‘official’ stats).

In contrast, the US has an official
poverty rate of 14%, though think tanks like the Economic Policy
Institute, consider this estimate low. Still, in its latest 5-year economic plan,
the Chinese government at least gave lip service to how to deal with
its growing inequality - by increasing certain wages by 40%, decreasing
taxes on the poor and increasing them on the rich.

The US government has no such strategy,
except in campaign speeches, as reflected by our anemic economy.
Instead, we witness inane partisan prattling over the deficit and what
mini-budget modifications are needed to bring it into line, most of
which would disproportionately detract from the people that had the
least to do with inflating it. (i.e. anyone not running a bank or hedge
fund.)

Yet, like our own, inequality figures
will worsen for China, which will ultimately destabilize its economy.
The result of attracting that menacing, mercurial entity called ‘global
capital’ is inflated growth figures predicated on bulging service
sectors and population wealth gaps. The more capital sloshing around a
country, the more destabilized it becomes, and the more its leaders
pretend that’s not the case. 

Global speculative capital (the kind
flowing through any major financial entity) is cunning, aggressive,
greedy, shortsighted, and yes, cowardly (it doesn’t stick around when
things get shaky.) If it were a person, it would smack down minions of
grandmothers and infants to get to the door of a fiery building first,
and then deny burn victims healthcare. It hates rules, which is why it
likes promoting the notion of markets free of them.

Individual investors in silver are the
latest casualties of speculative capital’s fickleness. People that
invested their own money in silver were snuffed by the entities that
borrowed or invested other people’s money to do the same. The COMEX
found the anti-speculation religion it never sought during run-ups of
commodities prices for items like food and fuel, and raised silver
trading margins.  Though those hikes were the prevalent reason for
silver’s price plummet, all they really did was give fast capital a
chance to book profits and alter course.

Any investment is subject to fundamental
forces, like supply and demand or how much US economic policy is
devaluing its currency. But, it’s more subject to speculative whims,
like who's in and out, by how much and how fast, whether its a fund or
an entire nation.

The time-honored scheme in which
controlling capital cons ordinary people (or governments) to join it
before crashing or heading for the hills has devastated many individuals
and economies. That ploy ran rampant during the crash of 1929. Banks
put up their ‘own’ capital, which was really borrowed capital, to spur
individuals to do the same with their savings. When banks pulled out,
people were hosed thrice – through the loss of their savings, the
decimation of their bank accounts that the powerhouses used for
speculative purposes  -  under the guise of – serving their clients, and
by a raging Depression that killed jobs and hopes.

Not much has changed. Matt Taibbi’s recent excoriation of Goldman Sachs reveals
how gray the line is between screwing and screwing, one’s clients. Only
now, when banks lose money, governments and central banks reward them
with trillions of dollars of subsidies, using the excuse of aiding the
population and avoiding larger catastrophe. They say things like - it
takes time to increase employment, but we can waste no time in propping
up our financial system. Or - pensions and teachers caused budget
failures, but we’ll keep holding excess reserves, borne of debt, for
banks in case they need it, and pay interest on it.

We are in an ongoing global economic
depression. The signs are everywhere, even as they are lost on economic
leaders that put private banks and short-term speculative capital before
citizens and long-term working capital. Central banks use other
people’s future money in the form of debt to do this. No central bank
holds, and thus enables, more national debt than the Federal Reserve.

I hate to keep repeating this, but until
someone of some ability to do anything gets it, I’m going to keep
going. Last week, Fed chairman, Ben Bernanke, co-enabler with Treasury
Secretary, Tim Geithner (among others) of our ballooning debt and
mis-prioritized economic policy, urged Congress for another debt cap
increase, or else.  The guy holds about  $2.5 trillion of debt on his books,
being used for – nothing helpful to the general economy. A simple
transfer would solve the debt cap problem in a nanosecond. Going a step
further, a simple exchange of any of the $1.5 trillion of excess bank
reserves receiving interest from the Fed, would do the same.  Instead of
defaulting on, how about retiring, some debt? Thinking outside the box.

All around the world, the bodies and
countries with the most power keep screwing people (some like IMF
head, Dominique Strauss-Kahn, literally) and entire nations, while
supporting their banking systems.  Last week, S&P announced it would
downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs.

Echoing our own Congressional goons
spewing spending cuts in the face of inadequate revenues and
for-bank-manufactured mega-debt, the S&P noted, “Two-thirds of the
projected savings in [Portugal’s] 2012 budget will likely come from
spending cuts.”

On a roll, the IMF also declared Italy
needs ‘structural reform’, meaning labor market reform, less public
ownership and more private investment to “unlock its growth potential.”
(aka invite more speculative capital at its earliest convenience.)

Meanwhile, thousands of people are again striking in Greece,
as the IMF and EU discuss more austerity measures, following the bank
bailout that provoked public outrage a year ago, and a rating downgrade
by S&P. The EU remains more concerned with investors regaining
confidence in Greece than economic stability of its citizens. Then,
there’s Ireland, for whom its last bailout didn’t dent its 14.5% unemployment rate, or fill in the gaping holes its banks dug.

In short, the global ‘remedy’ for
depressed economies and debt-bloated banking sectors remains to do  –
more of the same - and pretend  this will beget a different outcome.
Yet, there is no way this strategy will result in more stable
economies.  What we can expect instead is further widespread
deterioration.