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What Comes Next, Part 2: The Looming Transformation
Submitted by Jeffrey Snider via Alhambra Investment Partners,
Part 1 is here, the history of defining systemic operation since 1907.
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The quest over equality or the “right” to impose optimal outcomes is one that cannot go backward. The inevitable failures lead no duty to re-assess overall, but only the means by which the results are to be commanded. That was the essence of Triffin’s Paradox, which was only a paradox if you follow that socialist outline. In short, the dollar, by holding a direct link to value expression, meant too much limitation on the extent to which fiscal socialism could execute its various means – the US gov’t wanted to spend but deficits disrupted the dollar as a global reserve currency. The threat of dollar upheaval was too severe of a rebuke, but instead of taking that to heart as a tangible economic element the discipline set about on how to overcome it yet further.
The turn into the third age is the most misunderstood for the reasons of that transition. Not only did the dollar disappear as the dollar, but fiscal retreat was taken as some kind of “rightward” or libertarian turn. Friedman’s counter-response for the origins of the Great Depression seemed to be mindful of that. What really took place was instead shifting marginal control, and the tools to wield it, back toward central banks and “money” once more. The Thatcher government reprivatized industry and cut government spending and deficits, as did Reaganism, all the while eurodollars and Federal Reserve activism simply supplanted those as they receded. As government treasuries fell back to sanity, central banks took up the slack of planning against capitalism.
That has caused inordinate confusion about how to describe the past forty years or so; many, especially those that yearn for the second age, look to this third age as “capitalism”, including the very central bank practitioners themselves. That was in great part a response to Milton Friedman’s influence, but he failed to see that he was not leading marginal systemic reality back to free markets but instead cultivating the conditions to transfer socialist economic command back from fiscal to monetary.
A perfect example of this confusion is Paul Krugman. Dr. Krugman makes it very plain that he wishes to exercise the role of social scientist in generating both optimal economic conditions and fairness, which he believes are linked (as do most socialists these days, the fusion occurred a long time ago). Thus, he sees very well the transition from the second age to the third, in the abstract construction of each, but is perplexed by what actually constitutes the third. From 1999:
I grew up in a planned economy. Bureaucrats didn’t run everything: Small-business men were more or less free to buy and sell as they saw fit. But those who controlled the economy’s “commanding heights,” its key industries, were administrators rather than entrepreneurs, conformists who were valued less for their productivity than for their loyalty, whose career advancement depended on their political skill. For ordinary workers, the system had some benefits: It was hard to get ahead, but once you had a good job, your life was secure. Still, the economy was often appallingly inefficient and consistently unresponsive to consumer needs. No, I am not an immigrant from Eastern Europe. I’m talking about the U.S. economy of the ’50s and ’60s, when General Motors was the very model of a modern major company…
The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Enron–a company formed in the ’80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It’s sort of like the difference between your father’s bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company’s pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it.
Krugman again in 2002:
But then why weren’t executives paid lavishly 30 years ago? Again, it’s a matter of corporate culture. For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion of executive pay represents a social change rather than the purely economic forces of supply and demand. We should think of it not as a market trend like the rising value of waterfront property, but as something more like the sexual revolution of the 1960’s — a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual. Sure enough, John Kenneth Galbraith described the honest executive of 1967 as being one who ”eschews the lovely, available and even naked woman by whom he is intimately surrounded.” By the end of the 1990’s, the executive motto might as well have been ”If it feels good, do it.”
How did this change in corporate culture happen? Economists and management theorists are only beginning to explore that question, but it’s easy to suggest a few factors. One was the changing structure of financial markets. In his new book, ”Searching for a Corporate Savior,” Rakesh Khurana of Harvard Business School suggests that during the 1980’s and 1990’s, ”managerial capitalism” — the world of the man in the gray flannel suit — was replaced by ”investor capitalism.”
But all that didn’t just “happen”, springing up out of nowhere; “investor capitalism” was not an organic process that needs soul-searching levels of inquest. It’s much easier to see now having the serial asset bubble period to guide even the unwilling. The influence of the shift from the second age to the third age was still a socialist program of using macro ends to circumvent individual needs and perceptions, but exchanging government budgets that sought to borrow without restraint for monetary “stimulus” which cajoled private institutions and individuals to do the same. In order for that to happen, debt had to be created financially which meant “money” as well. The eurodollar system was only too obliging, which begins to account for “investor capitalism” properly categorized as “eurodollar socialism.” The banks stopped being the tool for private capitalism and overran all of it as an indirect agent of the government through various central banks.
The serial bubbles of the 2000’s are nothing more than what was wrought of the 1920’s, in general. The monetary character of both is not coincidence, as the failures that bookend each of these ages induces the transformation: from monetary to fiscal and back to monetary again. That looks like progress and accountability, but in each it only leads to more extreme measures (relative to the last) to still achieve what Robert Owen and Karl Marx conceived more than a century and a half ago.
That leads us to 2015 and what is certainly the ragged end of the eurodollar standard. The third socialist age was undone by August 2007, but that did not stop its proprietors of “eurodollar socialism” under the name “investor capitalism” from trying to rebuild and restore it to full capacity. There were some words exchanged about TBTF and some minor attention to banks overall, some spiffiness about “risk”, but in the end nothing much has changed; except actual function. That leaves us with perhaps another forming transition, from a third age to a fourth.
The groundwork has already been laid, and it is exactly what you would expect given the history since 1907. There are no widespread details about a return to capitalism and sound money practices, only how to overcome the third installation of that timeless barrier thrown down in the collapse of each of the asset bubbles so far – value. Paul Krugman himself is already playing a leading role, which more than suggests that the fiscal rebirth is already in its infancy. What seems to be lacking at this point is a final resolution where the Panic of 2008 apparently wasn’t but really should have been – perhaps the next failure.
That does not have to be a great financial panic or crash, and may be more attuned to social upheaval (which may actually be worse). However, given that “investor capitalism” has found new depths of debasement, there is a good chance this transition follows all the rest.
What isn’t as clear, or with much visibility yet, is how the eurodollar system might be replaced. If the next transition is simply to be a fourth age of socialist economics, then the choices are quite restrained. The opportunity, however, is to make it the first age of free market restoration. That, however, is a political question but one that might be enhanced in the market direction by the failure of the eurodollar standard itself. If gold defined money at the outset of the first age, quasi-gold at the start of the second, and eurodollars the third, there really is no definition of a dollar heading through the fourth; a problem and, again, opportunity.
To achieve that is even straightforward, to do what those arguing against prior shifts had not – to discredit. The shift to the second age was enthusiastically embraced, as shown by Churchill’s defeat, because it was generally believed capitalism had failed in the Great Depression (as if capitalism links call money to payment systems, and then advances call money through foreign “reserves”). The same is being setup right now, as Krugman and the rest would just as much like everyone to believe that capitalism built the asset bubbles, those greedy CEO’s and derisive shareholders who just want to screw everyone and use Wall Street to do it. But they are not the true perversions here, just manifestations of the real governing dynamic, and certainly not the one making Wall Street dance. The maestro directing the tune is the world of central bank socialism and activist economics using banks to go beyond everything imagined in either the first or second ages.
What keeps thwarting these perfect plans of growing central planning is value. No matter how much money is changed, altered and even completely banished, there is still some sense of it somewhere at all times. It may be harder to define and recognize, a purposeful deflection of money by proxy, but it is there – in the dot-coms when it all went wrong; in housing as sanity proved the balance to monetary-driven mania; and again as all the world’s QE’s and ZIRP’s cannot conjure even a meek economic drive for more than a few months at a time. That is to discredit, but it also suggests to those who believe their crusade never wrong, like the Robert Owen’s, Paul Krugman’s and Ben Bernanke’s, that a fourth age will have to be even more “creative” toward command ability. None of the “isms” are ever wrong, according to their zealous proponents, just never enough.
While so far most publicly available discussion surrounds still further intrusions against currency and money (including banning currency outright), at some point it may yet dawn that the true enemy of socialism this past century has been value; and it will remain so. In that respect, narrowly and in limited interpretation, Karl Marx has been proved right; so long as value remains, socialism has limitations. Those limitations may be somewhat pliable and vulnerable to intentional changes in money and currency, but it has survived and continues to provide at least some marginal anchor to true capitalist foundations. The challenge, as I see it, is to strengthen the anchor not try more devious and statist means to severe it.
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The time to repair the roof is when the sun is shining.
http://philiacband.com/propaganda.html
Krugman is effectively a demented spokesman for the New World Order, providing worthless assumptions as government sanctioned looters like HSBC and Goldman Sachs are given 100% reimbursement of their trading losses. HSBC laundered some $7 billion in narcotic sales from drug lords with no prosecution, just a fine. How can Krugman talk about a marketplace when everything about the marketplace is fixed? The only certainty is that almost all the looters who have made billions over the past 20 years will leave hefty trust funds to their heirs.
The Marxist-Oligarchy or Moligarchs have been committing flat out genocide against the middle class, raising taxes, forcing overpriced obamacare, bringing in 8 million indians with fake degrees on the H-1B visa, its all genocide so was moving all the factories away.
The question is morally what is behind it and can we stop it. What is behind it all is the psycho-jewish notion of the holocaust which never occurred, and the drive for a brown society full of third world people, who they seem to think that given enough feebies and handouts will be just as good as white people. That our nation will be just the same and profitable a place for them to take their vig.
Instead, we find ourselves slowly becoming the third world, with third world peoples, in the 14th year of collapse except the media lies about it. Negros and Mehicanos do not seem to produce but they do seem to rape and murder quite a bit. Somehow the dream that we were all the same and holding hands in Selma breaks down. Whats left?
It is a jewish notion that we must destroy America to make it safe for living. That we must NEGRO-ize it. Mehicanize it. Only then will it be a good nation. Let's import another 8 million indians with fake degrees because they are low iq brown skins. Heck lets make one the CTO of the USA even when they have a correspondence degree. No worries here.
The easy profits come from war, so Ameika is always at war. More profits come from prison so we have lots of those. Raise the taxes on the few working people left in private amerika to pay the huge pensions and freebies of the police, bureaucrats, firemen, to the point that working 70 hours a week is a chumps life. 2 weeks of vacation a year? Really? So people jsut stop working. 40% have so far. Where will it end?
The Obama plan
Now in an unprecedented move, a federal agency is joining the effort to get gun crimes under control, CBS2’s Marcia Kramer reported Monday.
Kramer is told it was a collective decision made by the federal government, the NYPD, the U.S. Attorney for the Eastern District of New York, and the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Those agencies are mounting a first-ever anti-gun initiative in high-crime areas.
“There’s going to be an increase in federal arrests – no doubt,” said AFT agent Charles Mulham.
Mulham’s words were intended to be a stiff warning to city residents who would carry weapons, and seem all to ready to use them. They will not only have to deal with the NYPD, but they will have the feds on their tail too.
Gee who would have thunk it?
This is a twisted replay of the Clinton presidency. New York will be the new Waco. They will impeach and remove Obama his last day in office for perjury.
MV = PT? Wow.
I'll see you, and raise you a letter: PV = NRT
I learned this in Gr.9, and that still does NOT help you design and build jack shit in engineering or real life.
I want a fucking raise, if these clowns get paid for Grade School Math skills.
What? "See my boos?" Oh damn, I AM my boss.
It does tell you what happens when you put water in a jar, put the lid on, then throw the thing in the fire though. As T increases, P increases at first, then all of a sudden, V increases. It's kinda cool, so long as you aren't standing too close.
No, I learned from Vanity Fair that B - P = K. That's the looming transformation on the average American's mind.
+1 for explaining the "less is more theorem" Rafter Man...lol.
Sounds very academic. The problem, IMO, is that people have lost a sense of responsibility for the future. This is evident in the slow destruction of the family, the community, and the culture. The advances described here are less sociological and economic and more pathological among those who have the greatest effect on the economy, a rather perverse "what's in it for me now" mindset. And thus the shift to greater socialism because centralized power is the simplest way to gain more personal power for those who seek power.
Perhaps the CEOs of the 60s did not earn huge sums because they still had some sense of responsibility for the future and not because they were simply afraid of "outrage" (Krugman...sheeesh). Certainly, the family and community were more stable and played a larger role in people's lives during that time.
Without the moral values in leadership (Confucianism having been replaced by legalism to the benefit of those in power), the direction described here is baked in and nothing - and no one - will alter the course of it until it plays out to either collapse or total control.
(sigh) alas...I agree. Only likely outcome in the near future is collapse or total control. Fortunately, prepping works for either scenario....for a while. But it's my children I am worried about.
You claim that
"The Thatcher government reprivatized industry and cut government spending and deficits, as did Reaganism,"
In reality Reagan expanded government spending, G, in order to stimulate the economy--a Keynesian response.
Taxes were lowered and this expanded the budget deficits considerably, especially early in the recession before the recovery began and tax receipts rose.
The effectiveness of the tax decreases was arguably far better than expansion of government spending, putting more money in the hands of the Middle Class quite unlike todays system embracing tax freedom for the wealthiest under the false premise they create jobs.
The economy Reagan inherited from Jimmy Carter suffered from low growth and high interest rates. Vietnam War spending had contributed to massive inflation during the 70s.
Carter was a fiscal conservative who ran a budget surplus throughout his Presidency, I believe, makinng him the last President to do so. Clinton stole from Social Security budget surpluses during the 90s.
Any claim that Republicans make concerning fiscal conservatism is not supported by the facts.
I'd revisit the popularized myth of Reagan's fiscal conservatism as the budget deficit expanded greatly under his two terms.
For partisan reasons Republicans seek to label Democrats as "tax and spend," as if they weren't complicit in the federal borrowing scheme that's expanded to the hydra it is today, well beyond the point the debtor can repay creditors the whole debt. Bad enough will our interest owed be, should rates normalize.
The illusion of choice in our two party system offers no real choice or accountability. The only alternative is not a way forward but a descent into a mockery of real democracy--corporate-sponsored stagecraft, force-fed to the public.
In a fiat world you cannot divide fiscal and monetary policy.
Reagan inflated the money supply using fiscal policy, expanding deficits.
Carter deflated the money supply using fiscal policy, by running a balanced budget.
Reagan's approach worked for the time it was implemented because of the fiat monetary system. It is a pyramid. If it fails to expand, it must collapse.
Carter's approach may have worked in 1912 under a hard Gold standard. But it would not have worked at any time since, because it could not do other than exacerbate the natural deflationary tendencies of a fiat currency regime.
Think of it this way...fiat currency exists to support fractional reserves in specific...and the idea that some people should get money for nothing in general. Hence, the whole purpose of both is to create more currency than there exists money to back it, with the difference between the two to be used by the 'money-for-nothing' crowd.
It is like trying to put more air (currency) into the body of a balloon (money), for the purpose of allowing someone whose value is small (empty balloon) appear to be larger (full balloon). It has inherent deflationary tendencies.
If you blow too much in, it will pop, allowing all the air to escape, and leaving the monetary balloon tattered and disjointed - as Greenspan discovered, as the wiemar economists once discovered.
If you leave it alone, as Carter showed, the natural leakage of the balloon (un-repayable loans) will cause the balloon to shrink eventually to its uninflated state.
If you stick a pin in the balloon (shock), or it encounters some chance sharp object, it will deflate violently, and shred the fundamental monetary body.
Once having embarked on inflation, one thing is certain. By pin, by pop, or by shrivelling, that inflation will come out.
In terms of our traditional monetary commodities, we've inflated at least 52 times.
Which do you prefer, the whimper or the bang?
I memorized this quote decades ago:
"Under Ronald Reagan's stewardship, the US went from being the world’s largest creditor nation to being the world’s largest debtor, which it remains to this day."
US debt tripled under his tenure.
(in reply to JBPeebles)
Tyler! Quick! Call the editorial team STAT!
We've got a hot ticket here, bursting at the seams with what might be good ideas, but WE CAN'T TELL because HE CAN'T WRITE!
C'mon team: RED PEN! NOW!
Go! Go! GO!
We can save this piece, but it NEEDS EDITING SO THAT IT IS COMPREHENSIBLE
Again a self-proclaimed ’libertarian’ who doesn’t know the difference between different versions of capitalism. Capitalism is, however, a pretty simple concept to understand. It’s defined by the private ownership over the means of production. The state can be used – and abused – by the capital-owners (as seen in fascist USA and many other parts of the world). It’s, however, still capitalism. Maybe not the fairytale version adored by the ‘US libertarians’ (in the rest of the world libertarians is opposed to capitalism – and all forms of systems that fosters accumulated power in few hands).
Socialism (I know, you might as well say ‘Satanism’ on this forum) is defined by the public and/or common ownership of the means of production. Even China doesn’t have socialism.
meme :"Socialism (I know, you might as well say ‘Satanism’ on this forum) is defined by the public and/or common ownership of the means of production. Even China doesn’t have socialism."
we the public own the National parks, but .gov agents determine what time of year and where in said parks one is to go...perhaps i mis understand "ownership"..
call me crazy, but public ownership of anything is .gov bureaucrats telling the public owners what limits they must accept to "our public places" try walking to the capital building, or not paying fees for use of Our national parks. So somebody has control of these "public assets", and sure acts like the owner of same..and surprise surprise it is not me and you, the public. LOL.
You cannot have public ownership of anything - but you can have a sign painted that says"public property"
while guarded by .gov agents there to keep you out. (all well meaning agents with no other agenda then the public good no doubt)
First of all, ‘parks’ and especially ‘national parks’ are not means of production. They might be an income generating entity (if you pay a fee to use the parks?), but they are not productive.
Second, if the state is (de facto) owned by the capitalists (as in US) it’s not an agent of the ‘public’ or the ‘commons’.
Third, in most of the ‘educated’ world there’re only two forms of acknowledged property regimes: private or public property. The third – and most important (in an anarchist socialist/’real libertarian’ perspective) is common property. By Garrett Hardin the regime was initially dismissed in his book “Tragedy of the commons”. He later admitted that his hypothesizes/conclusions were wrong. The use of resources in the commons – for instance in medieval times in Denmark/UK/Sweden, well, Europe – were regulated by the people using it. The exploitation of the commons came when the King (the state) seized the commons and made them ‘public/state’ ownership. By the way, the King was not a socialist even-though he supported a strong state (supported the ‘state ownership of the means of production’ – in order to produce anything you had to get permission from the King).
What we have today is a form of neo-feudalism. The feudal lords being the banksters owning the shit-show and the state just being their preferred tool to keep the peasants in line.
As a real anarchist (read: not a US indoctrinated ‘libertarian’), I’m opposed to both the concentrated power of the state and the concentrated power of the capitalists.
meme thank you for responding, any ism has this seed of it's self conflict, as the founders of American Republic wrote..no government system works unless you have a moral society..
What a bunch of gobbeldygook! Reading this article was a complete waste of time. The author could have summed up what he had to say in two sentences, or one. If he's trying to impress someone with his geekynessl and erudition, it didn't work for me. People like him should go work on a farm for a while. Maybe that would teach him the meaning of value.
"The third Socialist Age was undone in 2007...!
Hahaha, what an extraordinary punch line to summarise the Friedmanian monetarist mantra of 1971 leading on to the Reaganomics age of FIRE asset steroid pumped capitalism, portrayed here as the BASTARD CHILD OF MARXIST SOCIALISM.
hahaha! When the Libertarian dogma of obscurantist rants about American Monopoly/Oligopoly Capitalism's spike in supply side ecstasy and subsequent bubble-o-nomics rage as if they were the wages of socialist sin!
You have outdone the Spanish Inquisition that ordained during the counter-reform that Calvinism (the french Huguenot clique) was worse than infidel Islam as it was a PERVERSION of the Saint Catholic church, disseminator of the true christian religion; a betrayal from within the family is always more dangerous than the enemy without !
Well done Libertarians, you have declared that TRUE Capitalism's world is FLAT, like a true pancake, and all those who say its round and devious as a coiled rattlesnake should be burned as the heretics.
So when will the Libertarians invent this chimera called "true free market capitalism" like Thomas More's Utopia?
(Which BTW was a truly communist manifesto written 3 centuries + before Marx took pen to paper!)
Well, which part of Central Bank Central Monetary planning as proposed by Friedman would you suggest as Capitalist?
Which part of that involves doing nothing, and letting the resultant prices tell individuals what to do?
Exactly how is it possible for CENTRAL banking and LAISSEZ FAIRE to be other than antonyms?
So...your argument is that by declaring Friedman a Libertarian, his monetarist proposals for the State Central Committee for Monetary Management (a.k.a. the FOMC), is also Libertarian.
If you declare a turd to be a rose does it smell sweet? If you swap the names of day and night will we all be able to see during that time when the sun is gone? Simply because you've called it 'day'??
Capitalism is half the name. The ommitted half is LAISSEZ FAIRE.
Which part of CENTRAL MANAGMENT do you claim to be LAISSEZ FAIRE??
How is it physically or conceptually possible to simultaneously "Let it be" and "Monetarily Manage"???
How can you do something and nothing at the same time, speaking of the same object?
You are still talking a about a capitalist construct that is a mirage.
No other comment is required.
Go read Utopia. And remember Marx's critique of capitalism's ills --the REAL capitalism, not the dreamt one-- was SPOT ON; as Piketty is now demonstrating and the Oligarchs are desperately trying to sustain via their FED surrogates, keeping in mind the FED and government serve their neo-feudal aristocratic interests.
The real capitalists are the Rothschilds, the Rockafellas and the JP Morgans; not the John Galts of fairy tale fame.