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Guest Post: The Great Disconnect
Authored by Kemal Dervis, originally posted at Project Syndicate,
Since the second half of 2012, financial markets have recovered strongly worldwide. Indeed, in the United States, the Dow Jones industrial average reached an all-time high in early March, having risen by close to 9% since September. In Europe, European Central Bank President Mario Draghi’s “guns of August” turned out to be remarkably effective. Draghi reversed the euro’s slide into oblivion by promising potentially unlimited purchases of member governments’ bonds. Between September 1 and February 22, the FTSEurofirst index rose by almost 7%. In Asia, too, financial markets are up since September, most dramatically in Japan.
Even the Italian elections in late February seem not to have upset markets too much (at least so far). Although interest-rate spreads for Italian and Spanish ten-year bonds relative to German bonds briefly jumped 30-50 basis points after the results were announced, they then eased to 300-350 basis points, compared to 500-600 basis points before the ECB’s decision to establish its “outright monetary transactions” program.
But this financial market buoyancy is at odds with political events and real economic indicators. In the US, economic performance improved only marginally in 2012, with annual GDP rising by 2.3%, up from 1.8% in 2011. Unemployment remained high, at 7.8% at the end of 2012, and there has been almost no real wage growth over the last few years. Median household income in the US is still below its 2007 level – indeed, close to its level two decades ago – and roughly 90% of all US income gains in the post-crisis period have accrued to the top 1% of households.
Indicators for the eurozone are even worse. The economy contracted in 2012, and wages declined, despite increases in Germany and some northern countries. Reliable statistics are not yet available, but poverty in Europe’s south is increasing for the first time in decades.
On the political front, the US faces a near-complete legislative stalemate, with no sign of a compromise that could lead to the optimal policy mix: short-term support to boost effective demand and long-term structural reforms and fiscal consolidation. In Europe, Greece has been able – so far – to maintain a parliamentary majority in support of the coalition government, but there, and elsewhere, hyper-populist parties are gaining ground.
The Italian election results could be a bellwether for Europe. Beppe Grillo’s populist Five Star Movement emerged with 25% of the popular vote – the highest support for any single party. Former Prime Minister Silvio Berlusconi, confounding those who had forecast his political demise, re-emerged at the head of a populist-rightist coalition that ended up only 0.3 percentage points away from winning.
In short, we are witnessing a rapid decoupling between financial markets and inclusive social and economic well-being. In the US and many other places, corporate profits as a share of national income are at a decades-long high, in part owing to labor-saving technology in a multitude of sectors. Moreover, large corporations are able to take full advantage of globalization (for example, by arbitraging tax regimes to minimize their payments).
As a result, the income of the global elite is growing both rapidly and independently of what is happening in terms of overall output and employment growth. Demand for luxury goods is booming, alongside weak demand for goods and services consumed by lower-income groups.
All of this is happening in the midst of extremely expansionary monetary policies and near-zero interest rates, except in the countries facing immediate crisis. Structural concentration of incomes at the top is combining with easy money and a chase for yield, driving equity prices upward.
And yet, despite widespread concern and anxiety about poverty, unemployment, inequality, and extreme concentration of incomes and wealth, no alternative growth model has emerged. The opposition to the dominant mainstream in Europe is split between what is still too often an “old” left that has trouble adjusting to twenty-first-century realities, and populist, anti-foreigner, and sometimes outright fascist parties on the right.
In the US, the far right shares many of the characteristics of its populist European counterparts. But it is a tribute to the American two-party system’s capacity for political integration that extremist forces remain marginalized, despite the rhetoric of the Tea Party. President Barack Obama, in particular, has been able to attract support as a liberal-left idealist and as a centrist-realist at the same time, which enabled him to win re-election in the face of a weak economy and an even weaker labor market.
Nonetheless, without deep socio-economic reforms, America’s GDP growth is likely to be slow at best, while its political system seems paralyzed. Nowhere is there a credible plan to limit the concentration of wealth and power, broaden economic gains through strong real-income growth for the poor, and maintain macroeconomic stability.
The absence of such a plan in the US (and in Europe) has contributed to the decoupling of financial markets from inclusive economic progress, because it suggests that current trends are politically sustainable. But, while this disconnect could continue for some time if no alternative program emerges, the huge gap between financial markets’ performance and most people’s well-being is unlikely to persist in the longer term. When asset prices overshoot reality, eventually they have nowhere to go but down.
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Is this article intimating that the 47 million on food stamps aren't hedging the rising cost of living by front running Ben's magic pomo machine?
Well, know that my broker accepts my EBT card. I get text alerts from Jim Cramer on my Obamaphone... BUY BUY BUY!!
this so-called "disconnect" with sales of "luxury goods" is merely the normal out-rotation from the nissan versa fleets to the lamborghini fleets among ordinary small business owners.
For the top 10% there's Financial Markets. For everyone else there's financial ruin........
Almost any careful person, even the (US) poor, can get a 1/10th oz Gold Eagles for under $200...
It's strange how a person can always afford smokes but can't afford to put a little something away for a rainy decade.........
Why save when you can charge it?
I wish the crash would hurry up, I'm going on a little shopping spree once people a desperate.
Historically speaking, this gets corrected by only one thing: War. It's probably coming, but not around the next corner. So expect things to get much much worse before they get much much worse.
Clarification: "Revolutionary" war. As in the French style where the peasants rise up against the aristocracy.
@madcows: Should the poor in the U.S. rise against the aristocracy, you and I and many others in the ZH audience will be included in that aristrocracy. All you need is positive net worth.
The so-called recovery is based solely on theft, fraud and propaganda.
There is no recovery, and when people finally wake up and realize that their life savings have been stolen and then squandered,
they are going to be really pissed off.
They are already pissed off. But since they don't really understand what happened, they just act out randomly or against their own families or what have you. Very few can tie it back to the oligarchs.
Except that those who do have savings are the papy-boomers, and if/when they get angry ... well, what are they going to do ? They can't strike (since they are retired) they can't revolt (cos they're old) ... so if they're pissed-off, I won't loose my sleep.
Only the current elected government(s) will loose, since the retired are a very politized social class, and they are those who vote for the Demublicans (or Repocrats).
The young either doesn't vote, or vote extremes.
"But it is a tribute to the American two-party system’s capacity for political integration that extremist forces remain marginalized, despite the rhetoric of the Tea Party."
Obvious propaganda. MIAC anyone? Article promptly discarded to my overflowing wastebin.
No shit. We shouldn't congratulate ourselves on the fact that our political system is essentially set up to maintain the status quo. Europe, for all its faults, has multiple points of view when it comes to political parties. We do not.
We have "political integration?" That's code for one party rule.
we have come to the point where wanting smaller government and more liberty is an extremist viewpoint in the minds of the masses. this guy makes me want to puke.
I'd say demand for luxury goods is booming from money that's spilling from management fees.
All those printed billions from bonuses must go somewhere, and one only can eat so much rice.
Well, it hasn't be totally stolen.......yet.
2015 is the date. That's when the bondacopolypse begins, and the baby boomers and those who make over 100K/year and are feeling pretty snug right now, see their life savings/401Ks/pensions vanish.....maybe in the span of 2-4 weeks (maybe quicker).
The Rock of Damacles over the economy is the private debt (which is 2/3rds the size of govenrment debt). But it's Sword is the savings of the people; i.e. the 401k's and the like. That how the bankers control those with skin in the game......threaten to destroy the nest eggs in exchange for cutting safety nets and labor laws, as well as even lower wages.
Under Bush and Obama, you have to opt-OUT of 401k plans. It's a scam.
"Life Savings"....what is that? In today's world, life savings is available credit left on the credit cards.
+1 2015 with lots of preliminary decoy fingerpointing and screaming from the pod people. Then wham! Hamburger, everywhere.
"And yet, despite widespread concern and anxiety about poverty, unemployment, inequality, and extreme concentration of incomes and wealth, no alternative growth model has emerged.
Who the hell is concerned about poverty, unemployment, inequality and extreme concentration of incomes and wealth? Nothing widespread about those concerns that I've seen. They're the "lip service" issues. People talk about those subjects with kind words but do nothing about it.
Now suck it up that TBTF banks can't be sued and must be preserved no matter the cost- even at the cost of the entire nation. When it's just a smouldering heap of rubble there will still be Goldman, B of A, Citi, Wells, MS and a handfull of other banks to charge you late fees on your over-due credit card.
Dude, you must have forgotten we have Tyler(s).
Fight Club, Bitchez.
The economy in US and Europe are like one giant flywheel with a shitload of inertia. The "end" is a long ways off. Likely a generation from now. But I don't know shit.
I tend to agree with you. Japan is the model for "can kicking". Placid citizenry fans this flame. And TPTB can still afford the cops as "the help".
It wil probably take til 2020 for shit to start flying off that wheel. When governments run out of money to pay off the police and military class - thats when coups happen.
Things tend to fray pretty fast once a good tug is applied to the loose end. Public servants inclusive of all down to the school teacher, are links in the chain of government.
GDP growth? US GDP is a hoax number. It does not reflect real economic growth and wealth creation. It represents the hoax of a money printer and health care economy. I get cancer today, that is a boost for GDP. My neighbor has a heart attack and goes to intensive care, that boosts GDP.
America bombs Pakistan with expensive drone fired missiles, and GDP goes up. The US launches air strikes in Afghanistan using expensive laser guided bombs, and GDP risies. A US soldier has his legs blown off in a mine explosion and GDP goes up on the need for physical therapy for life and new high tech legs for the guy.
US GDP is a fucking farce. The FED prints money and GDP spikes. USA and it's GDP represent a great fucking hoax!
Good optics, Jack !
GDP ! GDP ! GDP !
Paul Krugman approves of this post
the elite are increasing their leverage and potential liability, they have to increase control equally.
That would be the Department of Homeland Security, a fairly hapless group no doubt, but with a secret weapon: Fat Janet looks to be one who can kill her own without flinching.
Did someone forget to tell these guys the best way to loose cash trading is to ask what the economist thinks?
Okay everybody, i've bitten my tongue long enough.
LOSE has one O in it okay?
Let them eat cake
Those in charge of connecting the disconnect would lose power if they were ever re-connected.
Good try Kernal ...with the misdirection and bullshiite...douche bag.
"President Barack Obama, in particular, has been able to attract support as a liberal-left idealist and as a centrist-realist at the same time, which enabled him to win re-election in the face of a weak economy and an even weaker labor market."
"centrist realist"?...Fuck you.
Obama won based upon massive early voting fraud, BIg Media completely biased and lying regarding Romney, and Google and Facebook CEO's supporting Obama with their Big Data tools and resources in the swing states.
The new "socio-economic model" you are suggesting is in the exact model that Obama has been looking surreptiously to implement ...... you left wing socialist scum bag pos.
I am in violent agreement with you.
All that is true, but Mitt Romney was no different than Barack Obama. Mitt was a liberal RINO from freaking Massachusetts - the state that pioneered the Health Insurance cartel that became Obamacare. The only choice in the last election was in the RNC primary. Ron Paul got enough votes by the RNC rules to be on the ballot at the convention and the RNC shit on him and his delegates. Don't think for an instant that the powers the be want anything to do with small government. The choice is always CFR candidate A - Obama or CFR candidate B - Romney. They are both shit sandwiches just with a different condiments.
Feckin' Kerval Davis - ex Turkey dbag...phd from Princeton...World bank and UN douche bag.....now senior douche bag at Brookings Institute - Dept of Spending taxpayer's money.
Kerval misdirects by pointing out the obvious result of Gov't deficit spending, Central bank negative interest rate policy. Then as a good douche bag ( learned so well with his time at World Bank and UN) tries to make it a class warfare issue and suggests "that it will not last" and that a "new paradigm" - typical World Bank / UN double speak for a new approach that leaves douche bags like World bank and UN in charge of taxpayer money....
Kerval = POS
And soylent green is here and at least we can say doesn't give a damn about income inequality.
http://www.naturalnews.com/035276_Pepsi_fetal_cells_business_operations....
When the SEC isn't protecting Wall Street they are protecting other big players.
The Obama Administration has given its blessing to PepsiCo to continue utilizing the services of a company that produces flavor chemicals for the beverage giant using aborted human fetal tissue. LifeSiteNews.com reports that the Obama Security and Exchange Commission (SEC) has decided that PepsiCo's arrangement with San Diego, Cal.-based Senomyx, which produces flavor enhancing chemicals for Pepsi using human embryonic kidney tissue, simply constitutes "ordinary business operations."
The issue began in 2011 when the non-profit group Children of God for Life (CGL) first broke the news about Pepsi's alliance with Senomyx, which led to massive outcry and a worldwide boycott of Pepsi products. At that time, it was revealed that Pepsi had many other options at its disposal to produce flavor chemicals, which is what its competitors do, but had instead chosen to continue using aborted fetal cells -- or as Senomyx deceptively puts it, "isolated human taste receptors"
A few months later, Pepsi' shareholders filed a resolution petitioning the company to "adopt a corporate policy that recognizes human rights and employs ethical standards which do not involve using the remains of aborted human beings in both private and collaborative research and development agreements." But the Obama Administration shut down this 36-page proposal, deciding instead that Pepsi's used of aborted babies to flavor its beverage products is just business as usual, and not a significant concern.
"We're not talking about what kind of pencils PepsiCo wants to use -- we are talking about exploiting the remains of an aborted child for profit," said Debi Vinnedge, Executive Director of CGL, concerning the SEC decision. "Using human embryonic kidney (HEK-293) to produce flavor enhancers for their beverages is a far cry from routine operations!"
To be clear, the aborted fetal tissue used to make Pepsi's flavor chemicals does not end up in the final product sold to customers, according to reports -- it is used, instead, to evaluate how actual human taste receptors respond to these chemical flavorings. But the fact that Pepsi uses them at all when viable, non-human alternatives are available illustrates the company's blatant disregard for ethical and moral concerns in the matter.
About sums up what the SEC's current mission statement should be.
Wait, the Tea Party is extremist? I guess if you can portray Dear Leader as centrist, everything else is far right.
The SOURCE of the disconnection is the same as the SOURCE of the money supply.
After the SOURCE of money, used throughout all the accounting decisions directing human behaviours, became LEGALIZED, PRIVATIZED COUNTERFEITING of "money," then everything automatically ran away with that as the foundation of the currently established social systems.
Every possible excuse was developed by those who enjoyed the privilege of making money out of nothing in order to make MORE money out of nothing. The collateral that was supposed to be the basis of the foundation for that fraudulent money made out of nothing, as debts, became a steadily smaller and smaller ratio to the amount of money made out of nothing, supposed to be based on that colleteral, in every possible way. One factoid to illustrate that situation is that the amount of various kinds of "paper gold" in the world today may be estimated to about sixty times the amount of physical gold that actually exists. Everywhere one looks, one will find a similar upside down pyramid, where more and more fiat money made out of nothing as debts balances on its head of a relatively smaller and smaller amount of real collateral.
The history of that runaway financial fraud, backed by the force of governments which legalized that fraud, was that the Bank of England began with a 50% reserve rate, allowing that privately owned bank to create money out of nothing, according to that ratio. When the Federal Reserve Board in the USA was established, there was then a 10% fractional reserve banking rate. In countries like Canada, for more than a decade, the effective fractional reserve rate is 0% for many kinds of "loans" of fiat money made out of nothing, as debts.
Canada is an interesting special case, which illustrates what has been happening globally. Since Canada has a relatively small population, compared to the amount of natural resources, Canada overall continues to be blowing a bigger debt bubble, which has not yet popped. The UK, and the USA, have had their debt bubbles somewhat popped, since 2008. While their governments have responded by driving themselves deeper into exponentially growing debts, the average people in the UK and USA have responded by somewhat decreasing their personal degree of debts. However, in Canada, the average people are still increasing their degree of debts, and thus, Canadians are still living in the la-la land of fiat money being the SOURCE of their personal decisions.
Canadians are STILL able, more than most other people in the world, to continue what the fiat money based Empires have been doing everywhere, for Centuries, which is that the fiat money frauds ARE based on turning the world's natural resources into garbage and pollution, as fast as possible.
Pretty well every economic decision that our globalized civilization makes are based on using "money" inside a fundamentally fraudulent financial accounting system. What that money finances is the strip-mining of planet Earth. As long as we can continue to strip mine the planet, then our current model of "growth" can continue to operate. That process of strip-mining the planet is running into real limits, in many different ways and places. (Canada is a special case, because it can still seem to strip-mine its resources more than before, and thus, Canadians are still able to live in that la-la land more than the people in the UK or the USA are still able to believe in enough to actually do.)
Since the whole system is based on fraudulent financing of strip-mining planet Earth, ALL REAL PROBLEMS ARE OF INCREASINGLY ASTRONOMICALLY SIZED MAGNITUDES!
"... despite widespread concern and anxiety about poverty, unemployment, inequality, and extreme concentration of incomes and wealth, no alternative growth model has emerged ..."
OF COURSE, "no alternative growth model has emerged!"
The actually existing systems are organized lies, operating organized robberies, whereby money made out of nothing pays for strip-mining the planet, on a one-way express trip to hell. Those who benefit from that system have every advantage to keep it going, for as long as that may be possible, while others have no effective ways to operate any real alternatives. The deeper reasons are quite simple: MONEY IS BACKED BY MURDER.
That is the real basis of the current systems. Therefore, alternative murder systems, doing alternative death controls, are the ONLY realistic ways to respond to the impossibility of endless exponential growth, based on being able to continue to strip-mine planet Earth, in ways which turn natural resources into garbage and pollution, as fast as possible, in order to make the most "money" within that runaway system of force backed fraud.
The ruling classes ARE preparing for the future, by preparing to start more genocidal wars, along with imposing democidal martial law. There are no other genuine solutions but to do that better. The whole world is rushing through exponential growth, towards overshooting and then collapsing into chaos. There are NO possible ways to maintain any "alternative growth model."
There is only possibility of evolving the dynamic equilibria of human and industrial ecologies, within whatever degree of natural ecologies. The central feature of ecological realities are the death controls (assuming there is life to begin with.) The actual economic systems ARE already based on the murder systems, that made the money systems possible. The actual economic systems already ARE debt controls based on the death controls.
As the exponential growth of strip-mining planet Earth, as financed with fraudulent money, reaches some real limits, there must be some more intense forms of ecology emerge! One way or another, sooner or later, the human murder systems, operating death controls, will manifest as the central control features (since they already always were.)
Any genuine "alternative growth model" should be based on the laws of nature, as those manifest through the flows of human, industrial, and natural energy systems. There ARE plenty of creative alternatives possible! There are many better ways that industrial ecology could emerge, in ways which are more consistent with the more ancient natural ecologies. However, the central feature of those possibilities are the human ecology problems, which are quintessentially the human death control issues.
What we have today is the runaway systems of the best organized gangs of criminals being able to take control of governments, in order to legalized their frauds, to finance the strip-mining of planet Earth, for the short-term benefit of those who control those financial frauds. The REAL money systems are based on the past murder systems. The future "alternative growth model" must be the alternative murder model. The current actual plans for that are the same old-fashioned ones, but merely technologically amplified, to become more genocidal wars, along with democidal martial law. The only possible "alternative growth model" is to develop ways to do that better.
Since the REAL HUMAN ECOLOGY TODAY is about 99% Zombie Sheeple, controlled by about 1% Vicious Wolves, with a range of Dogs to Black Sheep in between, the future is extremely problematic, since the triumphs of the Vicious Wolves were based on them being the best at dishonesty, and backing that up with violence, in order to build the current systems of runaway financial frauds, paying to strip-mine planet Earth, while the overwhelming vast majority of people have been almost totally brainwashed to believe in the biggest bullies' bullshit regarding those things. I.e., creating more money out of nothing to stimulate growth is supposed to be a "good idea."
By and large, the ONLY alternative public solutions which are significantly present are those promoted by various kinds of Black Sheep, which are pretty well too superficial and silly, and therefore, practically useless. Therefore, there is NO coherent "alternative growth model!" It is impossible for there to be any way to sustain endless exponential growth to continue strip-mining the planet, by continuing to endlessly create more money out of nothing, as debts, in order to pay for doing that!
There MUST emerge some new human ecology, along with an industrial ecology, which can operate within the bigger context of the natural ecology. That means there MUST emerge a new murder system, operating new death controls, because ONLY death controls can cope with the limits to exponential growth. There are plenty of theoretical alternatives which could operate some better human and industrial ecologies, within natural ecologies. However, the basic concepts regarding how to do that are deeply buried under the overwhelmingly dominant bullshit social stories regarding what those real systems are actually doing NOW, because of what their real histories were!
THERE NECESSARILY WILL EVOLVE SOME FUTURE HUMAN AND INDUSTRIAL ECOLOGIES, WITHIN THE NATURAL ECOLOGIES. THE MORE INFORMATION WE USE TO DO THAT, AND THUS THE HIGHER THE CONSCIOUSNESS WE HAVE WHILE DOING THAT, THE BETTER THOSE COULD BECOME!
Of course, what I expect is the continuation of the current systems, which are based on the maximum deceits, and the maximum deliberate ignorance, which will result in the most possible suffering, due to the least information, and the lowest possible level of consciousness, continuing to control what our "civilization" does. Although I WISH there were some signs of what should be, and looks theoretically possible, there are really no signs of anything else than the established systems being impossible to fix, because first they will drive themselves mad.
P.S.
Regarding that current situation of deliberately driven runaway madness, here is a link to what I regard as a relatively accurate article, although I feel that it underestimates the problems, and so tends to be too optimistic about solutions:
http://www.veteranstoday.com/2013/03/07/killing-america/
Killing America
By Preston James, March 6, 2013.
"... extremist forces remain marginalized, despite the rhetoric of the Tea Party."
Tea Party, extremist?
You are obviously part of the problem.