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Grantham Goes Marxist!
Grantham Goes Marxist!

“Capitalism threatens our existence.”
That's the message today from legendary investor Jeremy Grantham, whose GMO Capital manages $97Bn and, like Buffett, puts out an annual letter to investors. Part one of the letter has some great general investing advice but part two gets very interesting as Grantham titles it "Your Grandchildren Have No Value (And Other Deficiencies of Capitalism)." He exposes what he considers the "two or three main flaws" of Capitalism that are "potentially fatal and have gone largely unaddressed."
A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide.
Grantham points out that a company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners. So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress. And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term wellbeing, indeed its very existence.
Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising. And one of the first victims in this campaign has been the truth. If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation.
It’s now getting to be an old and obvious story, but because the corporate propaganda is good and despite the solidness of the scientific data, half of the people believe the problem is a government run wild, mad to control everything.
Here are some of Grantham’s finer points:
- Capitalism too heavily discounts the future value of cash flows as it seeks to raise debts: “Your grandchildren have no value.”
- "For example, let us say that a firm’s current actions are going to cost society at large a billion dollars’ worth of harm in 50 years. Further, let us agree that all of the costs will definitely be imposed on the company. The company would feel that pain today as equivalent to only a mere $1 million hit to earnings. Why should they care?"
- Companies foolishly reward executives for taking on debt: “Total remuneration ... for senior officers ... rose as a percentage of the average worker’s pay from 40 times in Eisenhower’s era to over 600 times today with no indication of any general improvement in talent.”
- It’s about profit, not people: “Capitalism in general has no sense of ethics or conscience. Whatever the Supreme Court may think, it is not a person.”
- The more people borrow, the more they just gamble: “Leverage ... increases your returns over and over until, suddenly, it ruins you. ... There are no Investors Anonymous meetings to attend.”
- This time, it’s not so different: “Ignore the ... inevitable cheerleaders who will assure you that this time it’s a new high plateau ... even if that view comes from the Federal Reserve itself. No. Make that, especially if it comes from there.”
- Washington is becoming a corporate subsidiary: “What Capitalism has always had is money with which to try to buy influence. ... The issues they influence are precisely ... the ones that are most important to society’s ... very existence.”
- Big companies can’t help it: “Ethical CEOs can drag a company along for a while, but this is an undependable and temporary fix.”
- Economic theory ignores natural laws. It suffers an “absolute inability to process the finiteness of resources. ... Capitalism wants to eat into ... limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today.”
- It’s not just inexpensive oil we are running out of: The “loss of our collective ability to feed ourselves, through erosion and fertilizer depletion — has received little or no attention.”
- Americans are too optimistic: “They adopt a hear-no-evil approach to life and listen exclusively to good news. ... There are always a few experts lacking in long-horizon vision, simple common sense, or whose co-operation has been rented, like “expert” witnesses at a murder trial, who can be dragged out to reliably say that everything will always work out fine.”
- Governments must step in. “To interfere with Marx’s apocalyptic vision, we need some enlightened governmental moderation ... before capitalism gets so cocky that we have some serious social reaction.”
- Where Marx and Engels got it wrong was in thinking workers would unite. “It’s going to be hard to have a workers’ revolution with no workers. Organizing robotic machine tools will not be easy.”
Does Grantham go too far or is he just part of the growing chorus of Capitalists questioning Capitalism? As I said in 2009 in "A Tale of Two Economies," the widening gap between the rich and the poor has gotten to the point where it is now harming the system and some (not too many, I'm afraid) of us Capitalists don't think it's prudent to simply take what we can from what's left of the bottom 99%'s wealth as if our fate is not entwined with theirs.
The concept of "giving back" has been ground out of the American mind-set and it's led to mountains of unsustainable debt World-wide as well as the destruction of the US and European Middle Class - turning the First World into a nation of haves and have-nots - a situation that simply cannot last, no matter how many new reality shows we come up with to distract the masses.
Eurozone unemployment hit 10.7% in January, the highest level since the Euro was established in 1999 and, outside of Germany, it's over 12% with Spain and Greece at 20% unemployed. December was revised up another 0.2% to 10.6% as well. 24M people in the Eurozone are unemployed and inflation is up 2.7% so those benefit checks buy less and less every month yet investors continue to believe that, where there is a whole lot of smoke - there is no fire.
Our own economy lost another 351,000 jobs last week with 7.5M people in the US collecting benefits and the other 9M finding that even 99 weeks isn't long enough to find a job before those benefits run out.
Personal income was up 0.3% in January but Disposable Personal Income was up just 0.1% as every dime of that extra $14.1Bn went straight into our gas tanks. That left Real Disposable income up just 0.1%, which is down from 0.3% in December and half of what was expected by Economorons, who don't seem to know that people buy gas and food - despite what the Fed says.
The Pound is holding up well because Martin Weale, of the BOE says that U.K. inflation may prove more persistent than expected, making it unlikely the economy will require further stimulus once the current round of bond purchases ends. Higher oil prices and potential wage pressures as the economy recovers “suggest a risk that there may be more persistence to inflation than one might expect at a time of rising unemployment and weak demand,” Weale said in a speech in London late yesterday. “I do not think there is likely to be a further case once our current program is complete” in early May for more bond purchases.
That will be good news for JP Morgan, who purchased $147.3Bn worth of insurance against just $142.4Bn in debt against bonds they sold to the PIIGS as well as for Goldman Sachs, who reported yesterday that they had purchased $147.3Bn worth of insurance against just $142.4Bn in debt. Before you go thinking there might be some sort of conspiracy involving what would have to be clearly illegal communications and coordination between our biggest Banksters, and not just the most amazing cosmic coincidence of all time - let's hear what one of their pet analysts, Chris Kotowski of Oppenheimer, has to say on their behalf:
"There are a nearly infinite number of possible coincidences that could occur any day of the year but don't. Every now and then, they do."
Well, I certainly feel better. Until I remember that we have a 1 in 625 chance of being destroyed by a giant asteroid in 2040 - we'd better hope that JPM and GS aren't rolling those dice!
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Or probably we should start thinking about developing an intergenerational perspective. So that we could price in the things we do today and it's effect on future generations. Nowadays the mentality seems to be kinda buddhist: Me, here and now. It wasn't always like that, so it's something we can change.
Perhaps instead of focusing on capitalism versus Marxism, we should focus on the human tendencies of power and corruption.
In 2040 there is a 99.99% chance nobody will be here to care.
Glad you are finally getting around to figuring some of this shit out Jeremy. Oh yeah, it really isn't just about how much money you can accumulate, is it.
JG conflates capitalism with politics.
The market of purchasers and the market of voters are two vastly different sets.
Sowing the seed of its own demise...
New birds around here. Came up from the south. Never seen this far north before...
i think he has finally realized that the end result of self interest is self destruction as a natural reset of capitalism. it happens all the time in micro ways and even in individual countries and then there is the great reset that involves the then known world. the entire world is known now so this reset will involve the entire world. what can be done? not an fn thing except to know that the reset is happening now. the crescendo is near. try to amass the necessities of life for a year anyway. don't forget toilet paper.
i should add that the marx system is as doomed because self interest, rational or not, cannot be denied as the most powerful force of any system. trying to establish group self interest as the basis of an economic system can be successful in the short run but too fragile to last as long as a capitalist system, simple cartel theory.
Nice spin 'Ilene'.
Amazing how such smart people ( I would count you as one Ilene), can't see past their programming.
Dear Ilene,
Your propagandist puppet obama, grand wizard of the 'progressive', leftist cause is in fact complicit in the rape of humankind. And like the great monsters of history before him, a massive body count will in fact be his ultimate legacy.
Ilene, please try to get this through your wonderful head.....
You clearly understand that freemarkets can be brutal, dirty, and unfair.
The political realm is just as clearly not your forte.
You think Goldman is a beast?
The same chumps that ultimately run Goldman's put your clown in power and spend HEAVILY to foster your misunderstanding of reality.
Just sayin'
I'd like to also thank Tyler for not 'gaming ' our accsess to information on this site. I respect the fact that Tyler doesn't tell us what to think. Tyler very clearly values truth and truth does have a tendency to favor positions not favorable to the 'progressive' 'movement'.
Having read both Marx and Rand, I submit that Rand frontran (my word) Marx quite accurately.
http://jessescrossroadscafe.blogspot.com/2012/03/james-koutoulas-mf-glob...
01 March 2012
James Koutoulas: MF Global Financial Collapse And the Shadow Banking System
Here is James Koutoulas of Typhoon Capital Management, and the founder of the Commodity Customer Coalition, discussing what happened with MF Global on Russia Today. As an aside, I would be more than pleased to present an informative interview with Mr. Koutoulas on US or British television, but there do not appear to be any.
What could be alarming is that the conditions that led to the loss of customers' funds at MF Global have not been corrected, and it could be happening again at some other firm even now. We just may not realize it because the losses have not yet been publicly disclosed.
As in the case of MF Global, the insiders and powerful customers learn about the impending loss first, and take steps to secure their accounts before the collapse and downfall occurs.
I think we need public executions of those convicted of gaming the system for personal gain.
Blood on the TEEVEE SKREEN BITCHEZS!
That'd beat Danzin Wif DA STARZZZZZZZZZZZZZZZZZZZZZZZ!
I don't know about him being a Marxist; but, hell, Marx told the world about the current state of capitalism 150 years ago. The more the punks on Wall Street rag on Marx's theories (not to be confused with communist Russia), the more everyone knows that Marx knew more about capitalism than pretty much anyone with a pulse these days, especially the 'capitalists' on Wall Street.
denny69:
You dumbass. Are you just here to troll or are you actually that ignorant?
Have you ever read Marx? If you haven't, dialogue over. If you have, then you would at least consider that it's not classic capitalism at work these days. Do you follow the news? What was that 15 trillion Bernanke sent to Scotland about? Yeah, I don't know either. Jon Corzine? On my planet earth, this behavior is called theft, not capitalism. Marx predicted, quite correctly, among other things, that capitalism would devolve to the last two corporations struggling for control of everything which remained. Sure looks that way to me; but I'm just trolling along not trusting anyone connected to 'finance' and I'm still eating fairly well. The smart way to approach a conflict is to know your enemy and that means reading the books they write. They may be trolls, but they may be correct and in this case, Marx was right on.
Capitalism died about 1989, but I think we should give it another try if the politicians, banks and crony capitalists will allow it.
HA HA HA HA HA HA HA HA HA HA HA HA HA HA Love your use of the word "if". That's hysterical...................
Keep up the good work.............
Whatever we were once, we are certainly a Corporate/Financial Oligarchy today. Our elected representatives are bought and paid for by the lobbyests and the laws exist to solidify and expand corporate influence. We need term limits and an elimination of corporate lobbiests, or electing officials by drawing lots, for anything to change.
Grantham's viewpoint pretty much matches my thoughts, but I'd add the 1% have revved things up over the past 5 or 6 years, almost like they knew they could steal a massive amount of wealth and get away with it.
That makes me think either they're planning some final move like WWIII, or with their wealth they've learned of some "event" that will seal the deal for their dominance and freedom from justice. Maybe something to do with CME's, Solar Flares, or the bright flash from nukes popping off. I heard a lot recently about D.U.M.B.S. (Deep Underground Military Bases). And what's the rumor about what is developed under the Denver airport? Isn't the CIA moving most operations there?
Looking back over almost 5 decades I can't remember anything like what we're enduring now, and I'm ready for it to end.....I smell boiling frogs.
Perhaps.
Likely a quid pro quo: The banks retribution on the pols.
The politicians (Clinton, Cuomo, Cisneros, Gorelick, Raines et al) used politics to shake down/force banks/lenders to lend to people who couldn't repay.
The banks said no.
Pols said "we'll scream red-lining and race!"
Banks said: "okay, but only if you back it!"
Pols said, "sure. What do we care? We look good to our voters, and it's taxpayer money."
Then the banks assigned their very good people to the task, and the pol's program went on sterioids (flipping condos in vegas).
Now, neither of them cares (they got their piece of the pie!) And it's the American people who take the hit.
Although I don't agree the politicians shook down the bankers, I think you describe the flow of events perfectly.
Hmmm reminds me of this comment:
"
It’s really difficult to find a better economic bomb to destroy capitalism. Link performance to pay and institutionalize the peter principle, along with golden parachutes and crony capitalism and a revolving door between wall street and washington d.c. and voila. The 2nd great depression holds us in its great arms, bear hugging us into economic death.
Oh yeah outsource all industries and as many professional services as possible to 3rd world slave states and communist nations. A mr. Lenin once said, “The Capitalists will sell us the rope with which we will hang them.” – he may not have been an economist, but he certainly understood the blind greed that drove our once great nation to the ropes.
Marry it to a fiat currency and a financial system composed of highly leveraged derivatives and how can we not succeed in destroying capitalism? Isn’t it funny? It wasn’t the communist who were our greatest threat, it was the capitalists. The irony is wrenching. I’d be laughing if I weren’t living in my car and living off scrap metal collecting."
from this article in a similar vein from of all people an economist:
"Harvard Business School professor Mihir Desai believes American companies and investment firms have erred–horribly–by linking manager compensation so tightly to financial market performance. In the current Harvard Business Review, he identifies this as a giant FIB, a Financial Incentive Bubble:'
entire post at:
http://dmarron.com/2012/02/28/is-incentive-compensation-a-giant-fib/
I agree that Capitalism pretty much destroyed itself so whatever the theories presented here..."we have a parliament of dunces" in the end. government had to move in not to protect capitalism but protect all the government programs that are dependent on capitalism functioning properly. if the "capitalists" thought they'd achieved some type of victory the few who are actually data oriented now know for a fact "this was the worst theory in history." the entire European banking system has for all intents and purposes now collapsed...if not for Trichet being replaced it would have been in a spectacular explosion of one European nation after another actually...and "all the alarm bells went off when BofA dropped below 5 bucks." But alas! "SAVED!" The reputational destruction of The Street is so massive and ongoing i really have a hard time imagining how it can possibly be restored in this century. Sure "we're making a fortune again"...but the American people...let along the world...will never trust that behind every dollar made isn't some corrupting of the only thing the American people have now...namely their political process. and that of course is what "capitalism without failure" looks like: lying, cheating, stealing--something no one would ever want to see in public...let alone ever invite into their home. how ironic then that the media capital of the US is in the same place...for now.
One could go on and on pointing to spots on the track where Grantham displays he long ago left the track concerning matters outside of finance.
However this point is especially important; "A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide." Capitalism isnt a currency system. Blaming Capitalism for the creation and abuse of a fiat currency system based on debt is like blaming a gun maker for murder, or a camera maker for child pornography. No, it's like blaming the ammunition manufacturer and film makers and memory chip makers...
I stopped reading Grantham when he started writing about Global Warming. In short order he showed his ignorance of those things outside finance. And to be honest, regarding things of finance, his only value was knowing the thoughts of a man who controlled a huge sum of capital. The fact is he has never written anything in his letters that an even casual follower of financial affairs didnt already read elsewhere, long before his letters graced our presence.
Mr. Grantham, please just shut up.
Hey Grantham, it's our quasi-Marxist governments that got us here. Dumb fuck.
Other than the fact that America is neither a capitalist economy nor a political democracy, I do agree with all of Grantham's observations.
You will note, in FDR's quote above, they've been pushing the concept of "democracy" for awhile.
Which is all fine and good (sounds great to the masses) if every able bodied person with reasonable intelligence is engaged in seeing it through for the common good.
But that's not the case nor has it ever been the case or ever be the case.
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.” Alexis de Tocqueville
it's when capitalism can vote itself the largesse that "the gig is up" not..."the people." go ahead...sell that home! i'll give you a couple grand for it...
Tocqueville was a smart man. He also noted the great power of inheritance on building America. It allowed for great fortunes to be divided by subsequent heirs, and gave those without great estates something to aspire to....
Instead of Estate Taxes and the convoluted laws of Trusts, maybe a simple requirement that "no taxes shall be imposed on estates and all estates must be divided equally among the natural/biological heirs"? Would make for some interesting outcomes and in two or three generations a great dispersion of wealth. The children of the wealthy frequently do not possess the intellect or character of their parents who built the wealth and usually piss it away rather quickly. Those that dont fit that norm, well good on them. They are just the kind of people we want to be wealthy.
Yes Tocqueville was very smart, very observant on many things.
"The children of the wealthy frequently do not possess the intellect or character of their parents who built the wealth and usually piss it away rather quickly."
Very true.
Usually the character part from what I can tell. As there is no doubt when someone offers one a bribe and they take it, the bribe has bought more than just the object at hand.
Now the hook is in...the science of diminishing returns for the bribed ;-)
“Your grandchildren have no value.”
Because Social Security is a purely capitalist construct? Puleeze. Your grandchildren are being robbed just as real capitalists said they would be in the 1930's.
"But they are guilty of more than deceit. When they imply that >>>the reserves<<< thus created against both these policies will be stolen by some future Congress, diverted to some wholly foreign purpose, they attack the integrity and honor of American Government itself. Those who suggest that, are already aliens to the spirit of American democracy. Let them emigrate and try their lot under some foreign flag in which they have more confidence.
The fraudulent nature of this attempt is well shown by the record of votes on the passage of the Social Security Act."
Those "reserves" were stolen weren't they ilene?
Stolen by a future Congress in fact. Just as predicted. Predicted by real capitalists, who saved real money and took real risks with their savings.
We haven't had "capitalism" here in 99 years, apparently you and Jeremy just got the memo.
http://millercenter.org/president/speeches/detail/3307
As long as we can drain their blood they will have some value
(He was talking about the discount rate, not Social Security. It's an accounting principle.)
We had a discount rate before the Federal Reserve was foisted on the Republic?
I was talking about the comparison of saved capital from earnings vs. manufactured "capital" from thin air, of course.
As an aside, I'm still searching for the pure Marxist model juxtaposed as a learning tool, as what we have here is always held out as a "capitalist model" in comparison...to something very vaporous.
Where is it? ;-)
I'd say the accounting concept became obvious (or was proven) around the same time people discovered "contango."
The thing is, as soon as someone comes up with a better simple illustration of "what capitalism is" than Marx, we'll be largely able to forget about him. Should be easy.
Only the armageddonists really believe in our ultimate perfection, whether you call it communism (as described by Marx, not as practiced in Soviet Russia) or nirvana or heaven.
"The thing is, as soon as someone comes up with a better simple illustration of "what capitalism is" than Marx, we'll be largely able to forget about him. Should be easy."
I already have. I don't go much for strawdogs. His premise of what it is and what it leads to, was a philosophical construct as opposed to an economical one in my estimation...goes without saying almost, as the results speak for themselves.
The slackers of both extremes (top & bottom) are always present in his model as well...but only the top (again) is well compensated for their efforts.
I think we can leave the talk of Armageddon with the government now demanding the labeling of fresh meat...in the food aisle.
Go long laser precision meat cutting machines because there is no way any meat label will be accurate...by designed regulation ;-)
Night BD
Have you ever shared that simple illustration of capitalism? I don't recall seeing it here.
In a much longer version, yes.
You know how long winded I can get ;-)
Yeah, well. No one's ever really refuted Marx's predictions.
He's just like Jehovah, in that regard.
"Americans are too optimistic"
No. It is the fluoride in the water. And the hopium in the air that everyone will be a millionaire in his/her lifetime. In fact social mobility is worse in the US than in Europe (except for the UK). The average American works 46.7 weeks per year — eclipsing by far the Germans (41.7). But why ruin the hopium high with the truth?
Keep the fluoride flowing - and have the audacity to hope. I thought it took desperation to rely on hope but out great Noble prize winner says it takes audacity. Yeah, the audacity to start wars all over the world while ensconced in the White House with a Noble peace prize.
"There are no Investors Anonymous meetings to attend.”
Maybe not, but, a growing number of Gambler's Anonymous attendees are stock market gamblers who never go to a casino.
I was audited by the tax authorities this year. They went through my taxes and asked for proofs of mortgage payments. I probably receive less than 96% of home owners in mortgage interest rebates. And some people here receive a ton of them. Thanks for looking out for us!
And doing random audits.
Buy scratch off lotto tickets till you die!! Da da da
Buy scratch off lotto tickets
And the Dutch PM JUST made the BIGGEST aboutface in the history of Euroland and talked about the fact that growth targets to 2020 have been interpreted too loosely. Must focus on more growth. So they've been reading this site the whole night in Brussels too.
The Final Countdown. Finally.
http://www.youtube.com/watch?v=izzKUoxL11E&feature=related
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Yes. Well put.
http://www.youtube.com/watch?v=23UkIkwy5ZM
The Supremes Baby Love